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Creditors can be held in contempt

The Supreme Court of the United States recently unanimously ruled in Taggart v. Lorenzen that creditors could be held accountable if they continue to harass those who have had their debt discharged through bankruptcy.

This ruling vacated the Ninth Circuit Court of Appeals ruling, which deemed that creditors should be given leeway even when it is unreasonable for them to try and collect a debt that was discharged in bankruptcy.

The creditor, in this case, was aware that Taggart had filed Chapter 7, yet it continued to harass him. According to news reports, Bankruptcy Court held Lorenzen in contempt, but the Bankruptcy Appellate Panel vacated the sanction, and the Ninth Circuit affirmed the decision.

An objective standard enforced

Justice Breyer pointed out that the standard is an objective one. The collection agency would not have the details involving the debt to understand that it was not discharged. Therefore it would be safe to assume that it is discharged.

New objective reasonableness

The bankruptcy code is also quite clear about specific examples of where a debt collector would have a legitimate reason to continue to pursue the debt. There is now a new standard of objective reasonableness that the debt has been discharged and debtors protected in most cases.

The courts will often differ

As this case shows, the different courts will have different interpretations of the law. Of course, the Supreme Court has the final say, but those facing litigation involving bankruptcy may need to appeal or defend rulings along the way as each court hears the case. A knowledgeable tax law attorney will be a tremendous help in cases such as this.

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William T. Peckham
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