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Federal Appeals Court Allows Creditors to Seek Repayment of Expired Debt Claims Through Bankruptcy Cases

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.

GavelMost Federal Bankruptcy Courts Will Allow Creditors to Claim Stale Debts Without Violating Federal Law

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.

The Dissenting Opinion is Critical of the Ruling

Although the majority of the Seventh Circuit agreed with the final ruling that the FDCPA does not prevent creditors from making claims for a stale debt, a dissenting opinion by the Chief Judge of the court found the ruling would only encourage the types of deceptive practices that the FDCPA was intended to prevent. The dissent noted that creditors who seek stale debts through bankruptcy proceedings would only ever collect any money on the debts in a situation in which the debtor or their attorney does not realize that the creditor’s claim is no longer valid. The dissent suggested that the recent ruling will encourage creditors to mislead debtors regarding the facts of a debt’s validity and disproportionately hurt bankruptcy debtors who represent themselves in a bankruptcy proceeding.

The Recent Ruling Should Not Affect Bankruptcy Debtors With Adequate Legal Representation

Although the recent ruling may make a bankruptcy more difficult by declining to extend the protections of the FDCPA to bankruptcy debtors, the ruling does not give creditors the right to collect any debts that they wouldn’t otherwise be allowed to collect under existing laws. Bankruptcy debtors who face claims for stale debts can successfully object to the validity of the debts because the statute of limitations has expired, and a skilled bankruptcy attorney should not have any problems having stale claims removed.

Finding a Qualified Bankruptcy Attorney for Your Case

If you or a loved one has been struggling with debt problems and are ready for a fresh start, bankruptcy can offer a solution to get your finances back on track. The advice and representation of an experienced bankruptcy attorney can help you resolve your debt and credit issues without accepting responsibility for any debts that are not valid or collectible. The Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center have the knowledge and skill you deserve when looking for affordable legal counsel. Our bankruptcy lawyers represent clients nationwide in various bankruptcy proceedings. Call 866-366-3328 today or contact us through our website to schedule a risk-free consultation.

More Blog Posts:

Employment Discrimination Lawsuit is Dismissed After Plaintiff Fails to Disclose it in a Bankruptcy Proceeding, Kentucky Bankruptcy Lawyers Blog, published July 28, 2016.

Bankruptcy Debtor Fails to Justify Transfer of Farm to Her Father Before Bankruptcy, Kentucky Bankruptcy Lawyers Blog, published August 14, 2016.

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