Although bankruptcy law is federal law, very few bankruptcy cases make it up to the Supreme Court. So, it is notable that the Justices delivered a unanimous decision in a bankruptcy case near the end of the court term that ended in June. In Taggart v. Lorenzen, the High Court made it clear that creditors who attempt to collect a debt after one has been granted a discharge will find themselves in big trouble.
Taggert v. Lorenzen
Taggart v. Lorenzen is a complex case, as most cases that make their way up to the highest court are. If you are curious about the underlying facts, you can check out this summary from Oyez, or this one from SCOTUSblog. It is the court’s holding that we are going to talk about.
In an opinion authored by Justice Breyer, the Court held that creditors who try to collect a debt after a discharge can be sanctioned for contempt of court not only if they knew what they were doing was wrong, but also if there was “no objectively reasonable basis” of their understanding of the discharge order or the statutes that govern its scope.
This ruling has important implications because there are many circumstances where debts survive a bankruptcy discharge and can still be collected. When a debt survives, the creditor may try to collect it, and that is okay. But if a debt has been discharged, the creditor must write it off, and should not, under any circumstances, try to collect. The problem is there are a lot of debts in the gray area that may or may not be discharged, depending on the circumstances.
A creditor who is owed a debt that may still exist needs to be extra careful and ensure the debt was not discharged before it makes any attempt to collect. Otherwise, the creditor may be found in civil contempt, which means they can be fined by the court.
Creditors who want to collect debts owed by a person or entity that has filed for bankruptcy would be wise to consult with an experienced bankruptcy attorney. The accuracy of the advice you take could make the difference between collecting a debt and getting charged a hefty and embarrassing fine.
Contact Our Milwaukee Bankruptcy Lawyer
Our firm has years of experience helping both creditors and debtors navigate the bankruptcy system, so we are in a good position to advise our clients even in tricky gray-area situations.