Creditors' Contempt

This Article takes a fresh look at the power of courts and creditors to force debtors to repay their obligations through in personam collection techniques. Variously known as “debtor’s examinations,” “turnover orders,” “citations to discover assets,” “supplementary proceedings,” “proceedings supplementary,” and “proceedings in aid of execution,” in personam remedies force the debtor, under threat of the court’s contempt authority, to turn over money or property directly to a creditor. Because the exercise of the court’s contempt authority can result in a debtor’s imprisonment, in personam techniques have long been regarded as a critical but potentially very coercive arrow in a debt collector’s quiver. Recently, the Federal Trade Commission and others have endorsed major changes to a debt collection system labeled as “broken.” These reform proposals, however, have overlooked key problems in in personam proceedings, where excessive creditor leverage and insufficient protection of debtors’ procedural rights risk validating a view that the judicial system is functioning as creditors’ private collection arm.

Following the transfer of power to a newly established Bureau of Consumer Financial Protection, this Article resurrects a subject that has received virtually no attention in the scholarly literature for over a decade. It analyzes the particular features of in personam proceedings and debtor behavior that contribute to a longstanding imbalance in the leverage asserted by creditors over debtors. The Article recommends specific changes to the way courts conduct in personam proceedings to ensure that the in terrorem effects of these remedies do not upend important social policies, including the protection of exempt property and the adjudicative fairness of the collection process. Debt collection is a fundamental component of the consumer credit system.

The strength and legitimacy of its procedures, however, depend on maintaining a difficult balance between the state’s and creditors’ interest in rigorous judgment enforcement and debtors’ interest in imposing reasonable limitations on the coerciveness of debt collection.