Clients sometimes ask whether filing bankruptcy can protect them from Federal Trade Commission scrutiny. The saga of Joseph Rensin and his company BlueHippo provides an opportunity to review the limited protection bankruptcy provides from the FTC. For more on the underlying case see our prior blog posts here and here.

Rensin, the owner of BlueHippo, has succeeded – at least temporarily – in his latest effort to avoid paying the $13.4 million judgment entered in the FTC’s decade-long litigation against the defendants. The Second Circuit held that the district court violated the Bankruptcy Code’s automatic stay by holding Rensin in contempt after he had filed for bankruptcy relief.

Prior to Rensin’s bankruptcy filing, the FTC sought an order from the district court holding Rensin in contempt for failure to comply with the $13.4 million judgment. The district court held an evidentiary hearing, and set a schedule for post-hearing briefing. Rensin filed a Chapter 7 bankruptcy petition two days before his post-hearing brief was due. Rensin sought to hold the post-hearing briefing in abeyance in light of his bankruptcy filing, but the district court ruled that the automatic stay did not apply under the “governmental unit” exception (aka the “police powers” exception) to the automatic stay.Continue Reading Oh Won’t You Stay: The Exception to the Governmental Unit Exception to the Bankruptcy Code’s Automatic Stay