“No Fair Ground of Doubt”: U.S. Supreme Court Sets Standard for Holding Bankruptcy Creditors in Civil Contempt
Over the last year, we have discussed the case of Taggart v. Lorenzen (2019) and the U.S. Supreme Court’s decision to consider whether a creditor can be held in civil contempt for attempting to collect a debt after the bankruptcy court issues a discharge order in a consumer bankruptcy case. The U.S. Supreme Court recently released its decision in this case, and the decision was unanimous. Writing for the majority, Justice Breyer clarified that a creditor can be held in civil contempt only in situations in which there is “no fair ground of doubt as to whether the order barred the creditors conduct.” The Court went on to clarify that the holding means that “civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful.”
As you might realize from reading this language from the case, the Court’s decision is friendlier to creditors in situations involving bankruptcy cases where the creditor continues trying to collect on a debt that it believes the debtor owes. We will say more about the case and the implications of the U.S. Supreme Court’s decision.
Recalling the Facts of Taggart
You may recall the facts of Taggart, but we want to provide you with a brief recap in order to situate the U.S. Supreme Court’s decision within the facts of this specific case. In Taggart, the debtor, Bradley Taggart, previously owned a business interest in a company. The other owners of the business brought a claim against Taggart, arguing that he had breached the company’s operating agreement. Prior to the trial in this lawsuit, Taggart filed for Chapter 7 bankruptcy. The bankruptcy court granted Taggart a discharge. However, after the discharge, the state court in which Taggart was being sued received a petition for attorney’s fees from Taggart’s other business owners seeking attorney’s fees.
Those other business owners argued that Taggart had “returned to the fray” after the bankruptcy discharge and therefore was liable for attorney’s fees. Taggart wanted to hold the business owners in civil contempt for violating the discharge order.
Requirement of “No Fair Ground of Doubt”
The bankruptcy court agreed with the business owners, and Taggart appealed. The district court found in favor of Taggart, concluding that he had not “returned to the fray.” The business owners appealed, and the Ninth Circuit Court of Appeals concluded that a creditor’s “good faith belief that the discharge order does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.”
In effect, the U.S. Supreme Court largely agreed with the Ninth Circuit. More specifically, it found that “a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.” To put it another way, if there is any fair ground of doubt as to whether a creditor can attempt to collect—or if there is any fair ground of doubt that the debtor “returned to the fray”—then the creditor cannot be held in civil contempt.
The U.S. Supreme Court’s decision makes clear that civil contempt in such a scenario is only appropriate when there is no reasonable explanation for the creditor’s belief that it was lawfully allowed to attempt to collect after a bankruptcy discharge.
Contact an Oak Park Bankruptcy Attorney With Questions
The Taggart case has a somewhat complicated fact pattern, but the U.S. Supreme Court’s decision makes clear that, in order to hold a creditor in contempt for attempting to collect a debt after a discharge, it must be absolutely clear that the creditor does not have any legitimate reason for thinking it can continue attempting to collect the debt.
If you are considering bankruptcy, or if you have questions about your rights after a bankruptcy discharge, you should speak with an Oak Park bankruptcy lawyer. An advocate at the Emerson Law Firm can discuss your case with you today. Contact us for more information about the services we provide to consumers in Illinois.
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