Creditors Seeking Clearly Expired Debts in Bankruptcy Court Allowed, SCOTUS Rules

Creditors Seeking Clearly Expired Debts in Bankruptcy Court Allowed, SCOTUS Rules

The Supreme Court of the United States recently held that creditors seeking repayment of debts evan after the statute of limitations has passed is allowable without sanctions, according to a Jurist.Org feature report. The recent case originated from Aleida Johnson’s, an Alabama resident, lawsuit against creditor Midland Funding. Midland Funding is a credit management corporation that sought repayment of an almost $1,900.00 credit card debt from Johnson, who filed for Chapter 13 bankruptcy in 2014. Two months after she filed for bankruptcy, Midland Funding filed a written statement with the court asserting a claim regarding the debt. The last activity on the credit card at issue was more than 10 years after Johnson filed for bankruptcy. It was also well out of Alabama’s six-year statute of limitations. As a result, Johnston sued Midland Funding, arguing that it engaged in unfair debt collection practices.


Unfair Debt Collection 

Johnson argued that Midland Funding violated the Fair Debt Collection Practices Act (FDCPA) when it claimed the debt was collectable. The nation’s consumer protection agency, the Federal Trade Commission (FTC), enforces the FDCPA, which forbids debt collectors from using abusive, unfair or deceptive practices to collect owed monies. Under the FDCPA a debt collector is a person or entity that regularly collects debts owed to third parties. Examples would include lawyers who collect debts on a regular basis, collection agencies, and companies that purchase delinquent debts and try to collect on them. The FDCPA covers several types of debts including personal, family, and household debts. This includes money owed on a personal credit card account, as in Johnson’s case, as well as those owed on a car loan, medical bills, and a home mortgage. The FDCPA does not cover debts incurred when running an enterprise.


SCOTUS’s Opinion

In the 5-3 decision, Justice Breyer, who delivered the majority opinion, noted that the written statement filed by Midland Funding in bankruptcy court did not fall under the Fair Debt Collection Practices Act (FDCPA). This is because, according to the court, the FDCPA protects consumers against  “false, deceptive, or misleading representation” of a debt as well as the use of any “unfair or unconscionable means’ to collect or attempt to collect a debt.” The Court did not find that Midland Funding’s actions arose to this standard. As a result of this decision, debt collectors like Midland Funding can go after clearly expired debts in bankruptcy court without facing sanctions for doing so. Justices Sotomayor penned the dissent, which was joined by Justices Kagan and Ginsberg. The Justices noted that because statutes of limitations are affirmative defenses, the likelihood of a consumer going through bankruptcy must appear in court to assert this defense. The dissenting opinion noted collectors would likely win billions in default judgments because debtors often fail to appear in bankruptcy court.


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