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Debt collectors often pursue time-barred debts

On Behalf of | Jan 24, 2017 | Bankruptcy

The bankruptcy laws are designed to give consumers in Virginia and across the country the opportunity for a fresh start. During a Chapter 13 bankruptcy, outstanding bills are consolidated and debtors make payments over three to five years. However, debt collection agencies sometimes submit claims that do not qualify for payment because the debts concerned are time-barred under the applicable stature of limitations, and this practice has been widely criticized by federal agencies, legal organizations and consumer advocacy groups.

The debt collection business in the United States has grown into a $13.7 billion dollar industry, and many of the businesses involved hound consumers for payment of debts that they have bought for 2 or 3 cents on the dollar from credit card companies and other lenders. Each state sets a time limit on how long consumers can be pursued for an unpaid debt, but many debt collection companies ignore these rules and submit proofs of claim in bankruptcy cases for stale debts. This practice has placed an additional onus on the nation’s already overworked bankruptcy courts.

The U.S. Supreme Court heard oral arguments on Jan. 17 in a case dealing with these issues. A circuit court ruled that the debt collection company involved violated the terms of the Fair Debt Collection Practices Act when it filed a proof of claim on a time-barred debt. However, this view has been rejected by three other circuit courts. The case took an unexpected turn when the U.S. Solicitor General put the weight of the federal government on the side of consumers by filing an amicus curiae brief on behalf of the debtor involved.

Virginia residents who are struggling to cope with an unmanageable financial situation may be aware of the sometimes dubious practices of the debt collection industry. An attorney with debt relief experience could point out that filing a personal bankruptcy is an effective way to stop creditor harassment and may also explain how a bankruptcy differs from other options like negotiating or settling debts.