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U.S. Supreme Court addresses proofs of claim on time-barred debts

When Florida residents file Chapter 13 bankruptcy petitions, their outstanding debts are consolidated and paid off over a period of three to five years. Debts are included in these plans when creditors submit what are known as proofs of claim, but debts older than five years are not eligible for inclusion under Florida law. Each state has a statute of limitation on outstanding debt, but many debt collection companies routinely ignore these laws and submit proofs of claim for what are known as time-barred debts.

Debt collection in the United States has grown to become a $13.7 billion industry, and many of the companies in this sector have developed a reputation for harassing debtors and ignoring consumer protection laws such as the Fair Debt Collection Practices Act. The practice of submitting proofs of claim for time-barred debts is a particularly thorny problem as it places additional stress on a bankruptcy court system that is already under considerable strain.

There have been many lawsuits filed over this issue, but the courts have ruled inconsistently. The U.S. Supreme Court heard oral arguments on Jan. 17 in such a case involving a debtor from Alabama. The Eleventh circuit ruled that the California-based debt collector involved violated the terms of the FDCPA when they submitted a time-barred proof of claim, but three other circuit courts saw the matter differently. A Supreme Court ruling should clear the issue up once and for all, and consumers may have reason to be optimistic. This is because the Office of the U.S. Solicitor General has taken the side of the debtor involved by filing an amicus curiae brief on her behalf.

One of the chief benefits of filing a Chapter 7 or Chapter 13 personal bankruptcy is putting a swift end to creditor harassment, but lawyers with experience in this area could point out several other reasons to take advantage of the fresh start that the nation’s bankruptcy laws make possible. A Chapter 13 filing allows debtors to escape overwhelming debt and regain control of their financial futures, and it also provides them with an opportunity to retain their assets and rebuild their credit ratings.

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