It’s easier for old debt to haunt American consumers seeking refuge in bankruptcy, thanks to a recent ruling by the Supreme Court in Midland Funding, LLC v. Johnson (2017). I have blogged before about Midland Funding and their reputation for collecting on stale debts and debt that they may not even be able to prove that you owe. Unfortunately they are one of the largest debt collectors that are out there and now the Supreme Court seems to have no problem with some of their fraudulent practices. I discussed how to manage old debt on 1150AM KKNW in Seattle, Washington with Dr. James Gore on the New Urban Unlimited Show and you can listen to our discussion here:
The nation’s highest court said debt collectors can try to collect on expired debt through bankruptcy proceedings without running afoul of the Fair Debt Collection Practices Act (FDCPA), reversing a lower court’s decision. The case started when an Alabama debtor sued Midland Funding, LLC under the FDCPA for filing a proof of claim in Ms. Johnson’s chapter 13 bankruptcy case related a time-barred $1,900 credit card debt that was over 10 years old. In Washington state, creditors have 6 years to collect on a debt from the last account activity which is called the statute of limitations. The new ruling diminishes much of the liability collectors previously faced when filing bankruptcy claims for debt that passed a state’s statute of limitations. The Eleventh Circuit had ruled in a 2014 case that the strategy violated the FDCPA, dissuading many debt collectors from the practice.
Because of the Supreme Court ruling in this case, bankruptcy attorneys and consumers will no doubt see more stale claims being filed in the bankruptcy court. If consumers don’t know that they have the right to object to the claims, they will be required to pay more into a Chapter 13 payment plan than otherwise needed.
The decision also emphasizes how careful consumers should be when it comes to old debts. Creditors and debt collectors can try to collect expired debt forever by calling or writing letters, but there are laws in place to protect consumers. Here’s what you should know about old debts to use the law to your advantage
Know the statute of limitations when collecting on old debt: While the ruling allows debt collectors to try to recoup expired debt in bankruptcy, they still can’t file a lawsuit against you for the debt. Each state determines how long a creditor or debt collector can sue for an expired debt, which can range from three to 10 years. The length depends on the type of debt and type of contract. The clock starts from your last account transaction. In Washington state the statute of limitations is 6 years.
Get verification of the old debt: If a debt collector calls or sends a letter to collect an old debt, you should respond in writing and ask to be provided verification to make sure the debt is yours with the date of last payment. You will also want to ask for proof that the debt collector has standing to collect on the debt. Your request for verification must happen within 30 days of getting a written notice of the debt. Debt collectors can’t collect debt until they provide verification. If the debt is outdated, you can use the written verification as proof of its expiration if the collector continues to come after you.
Stop annoying calls and letters trying to collect the old debt: By law, debt collectors must stop unwanted telephone contact if requested by the consumer in writing, no matter if the debt has expired. Document when you make your request. Specifically you should ask not be contacted again regarding the debt in any manner. Send by certified mail and get a return receipt. Keep a copy of the letter and return receipt for your records just in case the debt collector continues to call. This could be grounds for a FDCPA violation and statutory damages to you in the amount of $1,000.
Don’t ignore a court summons related to the old debt: You should never ignore a summons and complaint. Doing so could result in a default judgment against you and then attorney fees, interest, and penalties could be tacked on. Some debt collectors still try to sue for outdated debt as a pressure tactic. If the debt is time barred, you can use this as a defense to win your case. If you ignore the suit, you could end up having your wages or bank accounts garnished, not to mention a judgment showing up on your credit report.
If you pay the old debt, make you sure you get documentation: If you have decided to pay the old debt or negotiate a settlement, make sure you get the terms in writing. The agreement should state that the amount settles the entire debt and you are released from any further obligation. Never send a good-faith payment because it could restart the statute of limitations clock and allow the debt collector to sue you. Keep in mind however, that you making a payment on the expired debt will validate any negative reporting on your credit report, although the debt would be updated to satisfied, or settled for less than the full balance, rather than delinquent. However it could stay on your credit report for another 7 years.
Know how the old debt affects your credit scores: Even if a debt is past the statute of limitations, it can still show up on your credit report and hurt your credit score. Negative items don’t fall off credit reports until after seven years from the date of your last account transaction. That means although creditors may be time-barred from suing to collect your credit-card debt after only six years, the debt can remain on your credit report for another year. Making a payment can validate a debt and cause the debt to be reported as settled or settled for less than the full balance for another 7 years. If you are going to pay the debt, you should first try to ask for a “pay for deletion” where the debt collector agrees to delete the item off your credit report entirely. Many debt collectors may agree to this If you pay them in full, while others will just refuse to take you up on this offer.
Object to the old debt in bankruptcy: If you’re filing for Chapter 7 or 13 bankruptcy, review each proof of claim from every creditor. In chapter 13 case you can monitor your claims activity online. You can challenge a claim for many reasons, including expiration, by filing a written objection with the court. A judge will determine if the claim is valid. I would expect we should be seeing more time bared claims filed in the future
If you live in Washington State and are looking for assisting in managing your old debt, give Symmes Law Group a call at 206-682-7975 to speak to a debt relief attorney and learn about your options.