Decision on time-barred debt collections

Florida residents who are in debt may be interested in an impending decision of the U.S. Supreme Court regarding collection actions against time-barred obligations. Specifically, it will determine whether the act of filing a proof of claim in a bankruptcy case for a debt that is beyond the statute of limitations qualifies as a violation of the Fair Debt Collection Practices Act.

There are many companies that acquire charged-off consumer debt from the original creditors. If the debtor files for a Chapter 13 bankruptcy that pay pennies on the dollar, the debt collector may earn a profit. The claims that are filed in Chapter 13 cases may not be appropriately scrutinized which results in many of the claims being processed and receiving a portion of the bankruptcy settlement.

The invalid claims get paid because there are no objections to them during the processing of the bankruptcy case by the debtor or other creditors, and the bankruptcy court has no reason to deny the claim. The debtor may lack the funds, motivation or concern to challenge and is submitting a set monthly payment for the duration of the Chapter 13 plan, regardless of how many creditors have claims. The other creditors, which may get a minimal distribution, will not spend the necessary funds, which can total a few thousand dollars, to evaluate every proof of claim in the bankruptcy case.

If the Supreme Court determines the practice is a violation of the FDCPA, the companies will cease the practice or be held liable for damages a lawyers fees. However, if the court rules the other way, claims on time-barred debt will continued to be filed. Regardless of how the court rules, a bankruptcy lawyer may advise a client of the proper steps to object to a time-barred claim.