In 2013, there were 1,032,326 bankruptcies filed nationwide, a marked decreased from the number of such filings the previous three years: 2012—1,185,238; 2011—1,379,658; 2010—1,561,225. According to the American Bankruptcy Institute (ABI), this represented a 24 percent decrease in 2013, the lowest level since 2006. Every state experienced a decrease in filings in 2013.
There’s a reason for the sharp decline in bankruptcies. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which created a host of new substantive and procedural changes to the 1978 Bankruptcy Code, including restricting access to bankruptcy courts and limiting the amount of relief to be obtained. The BAPCPA came in response to the drumbeat by many different sectors of society who viewed bankruptcy as a vehicle to escape debt brought on by reckless and irresponsible spending.
Many bankruptcy courts saw BAPCPA as a license to not only streamline but drastically curtail the availability of bankruptcy. Some judges in these courts seized on the act as a power grab, a means to enforce their harsh bankruptcy views through the power of contempt.
But do bankruptcy courts have criminal contempt power? The federal circuits are split on the statutory basis for bankruptcy courts’ criminal contempt jurisdiction.
It has been recognized in some federal circuits that bankruptcy judges enjoy jurisdiction to conduct criminal contempt hearings along with the power to punish contemnors with imprisonment, probation and fines.
The Fifth Circuit is not one of those districts. In 1990, the appeals court decided In re Hipp that a bankruptcy court does not have the authority to punish criminal contempt as governed by 18 U.S.C. Sec. 401(3) and Fed.R.Crim.P. 42(b). “Today’s bankruptcy courts are arguably at least as much like magistrates or even administrative agencies as they are like other non-Article III courts… [They] may only certify facts showing contempt to district courts.”
Therefore, bankruptcy courts in the Fifth Circuit do not have the power to try and sentence for criminal contempt for violations of their orders. They can, however, certify facts demonstrating violations of their orders and refer the matter to the United States Attorney’s Office for prosecution in an Article III federal district court, a practice that appears to be growing.
Under the Federal Rules of Bankruptcy Procedure, Section 9020(b), bankruptcy judges enjoy the power to impose civil contempt whose purpose may be either remedial or coercive. The significant difference between criminal and civil contempt is that civil contempt is not a punishment; it is a means by which a court may bring a party into compliance with its orders or force the “contemnor” party to compensate a victim for acts taken in violation of a court order.
Pursuant to Fed. R. Bankr. P. 9020(b), the court must, before imposing civil contempt, issue a written notice that provides “specific details” about the alleged acts of contempt, sets a time and place for the contempt hearing, and afford the alleged contemnor with reasonable time to respond. § 9020(b) is also quite clear on this point: a judge is disqualified from hearing a contempt charge if he is the judge to whom any disrespect or criticism was directed.
A party who fails to comply with a contempt order may face escalating penalties, even to the drastic, and usually last resort, penalty of being incarcerated until the court’s orders are satisfied. It is generally said in these situations that the contemnor possesses the “keys to the jailhouse door” by simply complying the with contempt orders.
Beyond contempt citations, a bankruptcy judge may resort to other coercive remedies under Fed. R. Bankr. P. § 9011 which is remarkably similar to Fed. R. Civ. P. 11 in that authorizes use of sanctions against a party who sign and file court papers. This includes following the lead of 28 U.S.C. § 1927 which permits courts to sanction attorneys who “vexatiously” protract litigation.
Bankruptcy courts in Texas recognize 11 U.S.C. § 105 as providing them with the power to hold parties in civil contempt and impose sanctions. These courts rely upon the five Federal circuits—Third, Ninth, Sixth, Eleventh, and Tenth—which have recognized that bankruptcy courts have inherent civil contempt powers or at least powers to sanction. The First and Fifth Circuits have specifically held that § 105 confer on bankruptcy courts statutory civil contempt powers in addition to its inherent contempt powers.
But it should be noted that inherent in any court’s power to impose civil contempt is the caveat about abuse of discretion. Civil contempt cannot be a weapon employed by a bankruptcy court to force parties to adhere to orders or procedures that are inconsistent with either statutory or case law.