05 Jan Chapter 13 Claims Abuses
Recently, there has been a proliferation of improper claims arising in Chapter 13 cases. Typically, these claims either are too old to collect on, or the debt scavenger attempting to collect simply is not allowed to collect because they didn’t properly purchase the claim.
These creditors are attempting to create a debt collection loophole by collecting on debts otherwise not collectible outside of bankruptcy. Outside of bankruptcy, most these creditors do not sue debtors on stale debt since such suits would immediately be met with a countersuit. Many such claims go back several decades! ZOMBIE DEBT!
But since these debt scavengers interpret the Bankruptcy Code as the exclusive remedy lacking the enforcement mechanisms of other State and Federal Laws, they hope to exploit bankruptcy debtors by collecting ancient debt from them. Ironically, bankruptcy debtors are actually the individuals who need the most protection.
Outside of Bankruptcy, collecting on a time-barred debt is unlawful, and subject to defenses and counterclaims of state law and Fair Debt Collections Practices Act (FDCPA). The FDCPA at 15 USC 1692(f) provides that a debt collector is liable for statutory damages, actual damages, and attorney fees and costs, if litigation takes place on a time-barred debt.
In California, the District Court for the Northern District of California recently held that the mere threat in a letter to litigate on a time barred debt violated the FDCPA. Accordingly, outside bankruptcy, a California Debtor will recover damages from any creditor filing suit or threatening to file suit on a time barred debt.
By way of example, if a creditor files a lawsuit against a debtor the day before the bankruptcy filing date, the Bankruptcy Estate would contain a RFDCPA/FDCPA claim against the creditor as an asset on schedule B. Just because a debt scavenger files a legal pleading that day after the bankruptcy case is filed should make no difference in countersuing the debt scavenger.
Read more information on where these new bankruptcy debt scavengers came from
Written by Michael Doan
Bankruptcy Law Network (BLN)
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