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Collectors can pursue stale debt

On Behalf of | May 24, 2017 | Chapter 13 Bankruptcy |

A Supreme Court decision in May 2017 set a significant precedent when it comes to debt collection that Ohio residents should be aware of. The decision makes it okay for collectors to file claims in bankruptcy proceedings for debts that have passed the statute of limitations and are thus time-barred.

This Supreme Court decision is a reversal of an appellate court’s ruling. The 11th Circuit ruled that it was a violation of the Fair Debt Collection Practices Act to pursue a claim that was obviously time-barred from collection. Filing such a claim would be considered a false claim. The Supreme Court’s reversal means that filing a proof of claim for such stale debt is not considered a false or deceptive practice under the law. The debt collection industry considered this change a return to the status quo and an end to the confusion created by the 11th Circuit’s original ruling.

Nuances in the reality of this legal precedent are still important to consider. The court ruling makes legal the filing of a proof of claim, but that doesn’t necessarily make the claim any more collectible. The Supreme Court held that regardless of a claim’s actual ability to be enforced, the creditor can still claim a right to payment under the law. The decision was ultimately considered quite narrow and the full effect it may have on actual cases is difficult to determine. There is some concern that it may leave the door open for questionable debt collection practices.

Any court decision regarding debt collection may have some impact on the proceedings in a Chapter 13 bankruptcy case. How creditors pursue collection and what they are entitled to collect is often based on legal precedent and decisions from cases such as this one. A bankruptcy attorney can help clients understand how the current law will impact their cases.


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