In the USA it is not legal (in violation of the 5th amendment) for the court to compel you to reveal a password (if your read the brief the Judge says as much). However, if the court can prove by other means that you own the data on a drive, they can compel you to provide them with the unencrypted contents of the drive via a search warrant.
They know you stole the car because they've got surveillance video so now they're serving you with a warrant to produce the car so they can also prove physical presence in the vehicle. This is my view of the ruling.
The chick got recorded talking about the documents so they're asking for a readable version.
I imagine they would hold you in contempt until you convince the lawyer to provide you with the password. I'd be very careful about entering into such an arrangement. It's basically a conspiracy to withhold evidence.