A long shot provision in President Donald Trump’s budget bill raises questions about whether proposed court limits would apply to enforcing contempt citations in bankruptcy cases.
The measure, part of the president’s “big beautiful bill,” would bar federal courts from holding a party in contempt for failing to comply with an injunction or temporary restraining order unless the party seeking the order provides a security bond. But the broad language doesn’t account for a bankruptcy rule that explicitly exempts certain parties from posting security.
Because the measure would apply retroactively, it could affect pending bankruptcy proceedings.
The provision faces an uphill battle in the Senatewhere it’s expected to encounter resistance due to a Senate rule requiring provisions in spending bills to be budget-focused. Still, the provision’s underlying themes have caused concern among some bankruptcy professionals.
“If creditors were allowed to violate court orders and argue that the bankruptcy court couldn’t hold them in contempt because a debtor or a trustee didn’t post a bond, the bankruptcy system could fall apart,” said Christopher Hampson at the University of Florida Levin College of Law.
Courts across the country have repeatedly blocked Trump’s policy agenda, including mass deportations and restrictions on birthright citizenship.
The bill is largely known for tax breaks, increased military spending, and Medicare cuts. Sen. Dick Durbin (D-Ill.), who called the legislation a “big ugly mess,” told Bloomberg Law that the injunction provision shields the Trump administration from accountability for “lawless conduct.”
“The House Republicans passed a provision so unbounded it would allow parties to ignore temporary restraining orders and injunctions without penalty, upending cases ranging from immigration to bankruptcy and throwing the federal court system into chaos,” Durbin said.
The measure passed the House last month, 215–214.
‘Vague’ Language
The potential impact of the legislation came up June 3 during a 23andMe court hearing. Judge Brian C. Walsh of the US Bankruptcy Court for the Eastern District of Missouri, during a discussion of Canadian litigation against the DNA testing firm, asked whether the company would provide a security bond to support a preliminary injunction if needed.
Rule 7065 of the Federal Rules of Bankruptcy Procedure waives the bond requirement for a company, trustee, or debtor-in-possession, making it easier to obtain injunctions to block legal actions without posting a bond that they may not be able to afford.
Walsh noted that Congress likely wasn’t thinking about bankruptcy proceedings when drafting the bill, but he suggested the measure’s “vague” language could affect Chapter 11 matters.
The discussion arose after 23andMe requested in April that the court block Canadian lawsuits against former executives and its auditor, arguing they would jeopardize the bankruptcy proceedings, a potential sale, and drain estate resources.
While bankruptcy law professors say Rule 7065 will likely protect bankruptcy proceedings, the language in the budget measure, if enacted, could still affect cases, especially given its retroactive reach.
“It’s good for judges to raise the question now, because the pending bill would impact contempt proceedings for preliminary injunctions and temporary restraining orders that already exist,” Hampson said.
Marie T. Reilly, a law professor at Penn State Dickinson Law, said it’s unclear whether the bill would affect bankruptcy courts’ ability to enforce contempt citations related to orders halting litigation outside of the automatic stay protecting debtors. Those non-automatic injunctions are often used to pause legal actions against people and entities with ties to a bankrupt company, such as officers and directors.
“The judge in the 23andMe case asked the debtor’s lawyer about the impact of the bill on the motion before him because he was concerned about issuing a non-automatic stay that the bill might retroactively render unenforceable,” Reilly said.
She said while Rule 7065 subjects motions for non-automatic injunctions to the Federal Rules of Civil Procedure, it includes an exception if certain parties—like the debtor—request them. As a result, the measure may not impact bankruptcy proceedings at all, though it could still be interpreted broadly.
“It’s possible to read the bill broadly to prohibit enforcement of any federal court injunction issued without security for the enjoined party, which would include virtually all bankruptcy court non-automatic stays,” Reilly said.
And if the bill were to apply retroactively, it could affect all existing mass tort bankruptcy cases where injunctions were issued without security, she said.
Section Workarounds
If the provision were to become law, bankruptcy academics say courts could circumvent it by expediting proceedings or accepting a nominal security amount.
Because the measure doesn’t specify an amount, judges could allow nominal bonds, such as $500 or $1,000, as a workaround, Hampson said.
He also noted that many bankruptcy cases are adjudicated at the preliminary injunction or temporary restraining order stage, resulting in early rulings that shape outcomes for years due to lengthy litigation.
The bill only restricts contempt rulings for violations of temporary restraining orders and preliminary injunctions. So if it were to succeed, “it may push courts to get to final rulings faster,” he said.
If a party disagrees with a preliminary injunction or questions the bond requirement, it would typically appeal. But limiting courts’ powers when there is no security posting could invite noncompliance.
“The bill seeks to undermine the law, and I expect that provision will be jettisoned by the time this is done,” Hampson said.
