Should a Chapter 7 consumer debtor be permitted to prosecute a new lawsuit in the United States District Court alleging that a creditor should be held in contept for attempting to collect a debt discharged in bankruptcy, instead of pursuing the remedy in the debtor's earlier filed bankruptcy case? Our firm recently filed a motion on behalf of a creditor to transfer such a case to the United States Bankruptcy Court for the District of New Jersey. The case is Stevens v. Transunion, et al., United States District Court, District of New Jersey, Case No.: 3:22-cv-00042-TAS-TJB.
A bankruptcy discharge issued under 11 U.S.C. Section 524(a) operates as an injunction prohibiting creditors from pursuing collection of debts deemed discharged or wiped out by the bankrputcy. Typical examples of debts discharged in bankruptcy include credit card debts, unpaid medical bills, and certain contractual obligations.
Numerous courts have held that a claim accusing a creditor of violating a bankruptcy discharge injunction is central or "core" to the bankruptcy court's jurisdiction, and therefore should be decided by the bankruptcy court which issued the order. Section 105 of the Bankruptcy Code grants the bankruptcy court with authority to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. Section 105(a).
Indeed, bankruptcy courts have regularly exercised their contempt power under Section 105 in order to remedy violations of the discharge injunction. In re Meyers, 344 B.R. 61, 65 (Bankr. E.D. Pa. 2006); see also Robin v. Woods, 28 F.3d 396, 399 (3d Cir. 1994). See also, Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 421-222 (6th Cir. 2000) (Court affirmed district court's dismissal of action brought by former Chapter 7 debtor predicated on the defendant's alleged violation of the bankruptcy court's discharge order, holding that "the traditional remedy for violation of an injunction lies in contempt proceedings, not in a lawsuit such as this one."); In re Faiella, 2008 WL 1790410, at *6 (Bankr. D.N.J. Apr. 18, 2008) ("A bankruptcy court is vested with the power 'to enforce its subpoenas and orders by the power of civil contempt.'").The purposes of sanctions in a civil contempt proceeding are to coerce the contemnor into complying with an order of the court and to compensate the harmed party for losses sustained because of the contempt. Faiella, 2008 WL 1790410 at *6.
In New Jersey, the District Court's Standing Order of Reference 12-1 dated September 18, 2012 authorizes the District Court to refer core bankruptcy proceedings to the Bankruptcy Court. Since bankruptcy courts decide contempt proceedings by motion pursuant to Bankruptcy Rule 9020 and Bankruptcy Rule 9014, thereby offering a more economical path to resolution by obviating the need to engage in costly pretrial discovery, we have asked the District Court to transfer the case to the Bankruptcy Court.