An individual debtor is generally entitled to a discharge at the conclusion of a bankruptcy case. A discharge is a legal injunction that both releases the debtor from liability for most pre-bankruptcy debts and bars creditors from collecting any debt that has been discharged. A creditor that violates the discharge may be held in contempt and subject to sanctions by a court.
In Taggart v. Lorenzen, the Supreme Court set the standard for when to impose civil contempt, holding 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.” Simply put, “civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor's conduct might be lawful.” It follows that a court may refrain from holding creditors in contempt if there was an objectively reasonable basis for concluding that the creditor’s conduct might be lawful.
This memorandum explores when a court may hold a creditor in civil contempt for violating a discharge order. Part I analyzes the legal standard for holding a creditor in civil contempt for violating a discharge order. Part II analyzes common law principles of civil contempt and how these principles both grant and limit the power of courts to use civil contempt through their incorporation into the Bankruptcy Code. Part III examines subsequent decisions to see how courts have applied the new standard for civil contempt for violating a discharge order.