The United States Court of Appeals for the Seventh Circuit recently released a decision allowing creditors to make claims in a debtor’s bankruptcy case for the repayment of debts that would otherwise be time-barred and ineligible for collection through a standard debt collection lawsuit. The Seventh Circuit decision was in line with other federal appellate court rulings that declined to apply the protections of the federal Fair Debt Collection Practices Act (FDCPA) to creditors’ actions within a debtor’s bankruptcy. Although the recent ruling allows creditors to pursue stale claims without violating the FDCPA, it appears the creditors will still be unable to collect on the stale claims as long as the debtor or their legal representative objects to the validity of the debt properly in the bankruptcy proceeding.
The most important point of the ruling in the case of Owens v. LVNV Funding, LLC was the court’s finding that creditors are not in violation of the FDCPA by adding a claim for a stale debt to a debtor’s bankruptcy. The court focused on the specific protections of the FDCPA to find that a creditor would not be violating federal law by including a stale debt claim in a bankruptcy, since a bankruptcy is not a collection case per se, and the FDCPA was not enacted to prevent creditors from bringing claims to the attention of a bankruptcy court, even if those claims are ultimately not recoverable by the creditor.