Bankruptcy Law Blog

Sunday, February 26, 2017

Supreme Court To Decide Debt Collection Case With Alabama Roots

Debt collectors are some of the most-hated folks on the face of the earth. People like them even less than lawyers, which is saying something. Unlike lawyers, debt collectors deserve their rotten reputation. They aren’t out to help anyone but themselves as they pester, threaten, and sweet talk people into paying off debt that in some cases is no longer collectable.

The highest court in the land, the United States Supreme Court, has actually taken up a case that centers around expired credit card debt that a debt collector attempted to get an Alabama woman to pay back when she filed for bankruptcy.

Aleida Johnson filed for Chapter 13 bankruptcy in 2014. (As a reminder, Chapter 13 involves keeping most assets and setting up a repayment plan, which is different from Chapter 7 where assets are liquidated and then most debts are forgiven.) When the court called for all of Johnson’s creditors to come forward so a repayment plan could be created, Midland Funding LLC, a subsidiary of the debt-collecting firm Encore Capital Group, said Johnson owed them $1,879.71 in credit card debt.

While it is true that Johnson had not paid off her credit card debt, by the time she filed for bankruptcy, the debt Midland Funding was trying to collect from her was over 10 years old. The timing here is important because under Alabama law, creditors can’t collect a debt that is more than 6 years old.

The Supreme Court is going to decide whether it is okay for debt collectors to ask for expired debt to be paid back when a debtor files bankruptcy, or whether what the debt collection companies are doing should be illegal.  

The Court should make its decision by June, but in the meantime, this case is an important reminder that some debt expires and basically goes away even if the debtor doesn’t file for bankruptcy. If you are thinking about filing for bankruptcy, make sure that you actually owe all the debts you think you do. It is possible that some of them have expired.

The case is also a good reminder to pay close attention to the claims creditors make to the bankruptcy court. No matter how long it takes, or how difficult it is to do, it is critical to go over each claim to determine if it is valid.

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