Bankruptcy Newsletter
How is Contempt Handled in a Bankruptcy Case?
The bankruptcy court controls the processing of bankruptcy cases. In many instances, the court must issue orders to force a debtor or creditor to cooperate. For example, the court may order a debtor to disclose certain assets, or may order a creditor to stop any attempts to collect a debt while the debtor’s bankruptcy case is pending. However, some people refuse to obey valid orders issued by a court, and this may lead to contempt proceedings being brought against them.
Orders Issued by a Bankruptcy Court
In addition to the orders noted above, some of the valid orders a bankruptcy court may issue include:
- Discovery Orders – To respond to discovery requests, such as, to attend a deposition or to produce documents after a prior refusal to do so
- Orders to Transfer Property – Related to fraudulent transfers (such as attempts to hide assets)
- Stay Orders – To suspend creditors from trying to collect money from the debtor while the bankruptcy case is pending (typically issued after a violation of the automatic stay)
- Fines/Sanctions – Penalties payable to the court for violations of court rules or other procedural matters
- Miscellaneous Orders– Setting deadlines to file and serve documents, to submit bankruptcy plans, etc.
Court Orders Enforced
Willful violation of a court’s order is considered contempt and the courts have authority to punish those who willfully violate a valid order issued by them.
Contempt can occur in two instances:
- Direct Contempt – Conduct which occurs directly in the court’s presence
- Indirect Contempt – Conduct which occurs outside the court’s presence
In instances of direct contempt (such as a loud outburst in court), the judge can immediately set a hearing for the violator to show why he/she should not be punished for disobeying a court’s direction.
In instances of indirect contempt (such as failure to attend a deposition), one of the parties must inform the court of a willful disobedience of a court order. The court then sets a hearing so that the violator can have an opportunity to explain.
Bankruptcy judges have limited authority, however, and in many instances refer contempt matters to the district court. This is especially true where the particular act of contempt rises to the criminal level.
Consequences of Contempt
Contempt proceedings are considered to be “quasi-criminal.” That is, the court has discretion to impose fines and/or jail time, if the violation is severe enough. In addition, the violator may be ordered to pay any costs incurred by the other parties related to the contempt proceedings.
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