The rights of creditors under the Fair Debt Collection Practices Act are being reviewed by the United States Supreme Court. Currently, the law prohibits creditors from filing claims for time-barred debts. However, a recent split between the Circuit Courts means that this may change.
Collecting on Old Debts
At issue is whether or not creditors have the lawful right to actively participate in a Chapter 13 case by filing a claim. On one hand, this would deny creditors the right to due process. On the other, it would allow creditors to pursue these debts after the Chapter 13 has been completed. In the process, this would eliminate the fresh start that a successful bankruptcy proceeding would create. Essentially, creditors could still pursue time-barred debts and remain in compliance with the provisions within the Fair Debt Collection Processes Act.
The 4th and 7th Circuit Courts have ruled that creditors may file time-barred proof of claims without violating the provisions of the FDCPA. In contrast, the 11th Circuit Court has ruled that the filing of time-barred proof of claims is a violation. At the same time, appeals regarding time-barred proof of claims remain unresolved within the 1st, 3rd, 5th, and 6th Circuit Courts.
For this reason, both sides of the issue have requested the Supreme Court issue a writ in order to resolve the split between the courts on the matter.
Chapter 13 Doesn’t Extinguish Debt
Chapter 13 bankruptcy allows debtors to maintain their property and pay debts in accordance with a specified plan. This plan typically lasts between three to five years. The bankruptcy code requires timely notification of all known creditors that bankruptcy proceedings have commenced.
Creditors have the right to review the documents and statements filed by the debtor. This review allows them to determine the impact the bankruptcy will have on the debts owed to them. As part of this creditors must file their proof of claim and any objections to exemptions that debtor requests.
Bankruptcy lawyers in Illinois can help clients determine the best way to proceed as they grapple with the issue of time-barred accounts and creditors filing claims for these owed monies. For now, the 7th District Circuit Court has ruled that the filing of time-barred proofs of claim are valid and enforceable without violating the provisions within the FDCPA.
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