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Supreme Court ruling upholds creditor responsibilities

People in Mississippi may be aided in finding relief from overzealous creditors by a U.S. Supreme Court ruling. The high court ruled on June 3 that creditors can be held in contempt of court if they continue to pursue debts that were clearly discharged in a bankruptcy. Previously, the Ninth Circuit court had found that creditors should be cleared of sanctions in these cases, even if they should have reasonably known that the bankruptcy discharge applied to their debt.

The Supreme Court said that other courts can use civil contempt penalties against creditors that fail to follow a bankruptcy discharge order if it can be shown that the creditor should not have had any doubts that the order barred their activities. The case came about after the Sherwood Park Business Center continued to attempt to collect debts from a man who had filed for Chapter 7 bankruptcy, eliminating the debt. The bankruptcy court imposed sanctions on the creditor, saying that it was aware of the man's bankruptcy order and the debt's discharge. However, other courts overturned the contempt order on the basis of the creditor's statement of its good faith in the legitimacy of its collection attempt.

Bankruptcy lawyers said that the high court's ruling provides a higher level of protection for debtors. It uses an objective standard of reasonableness to assess a creditor's actions and beliefs rather than relying on a subjective assessment of good faith. They said that the bankruptcy code provides detailed provisions and that creditors should generally be very clear on whether the bankruptcy discharge applies.

One reason why many people file for bankruptcy is to put an end to phone calls, letters and other forms of ongoing creditor demands. People who are facing an insurmountable debt burden might opt to consult with a bankruptcy attorney about their options for relief.

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