Collection Agencies Win the Right to Demand Payment of Expired Debts

As report by the Wall Street Journal and Bloomberg News the Supreme Court on May 15, 2017 authorized collection agencies to demand repayment of expired debts from consumers in bankruptcy proceedings with a 5-3 ruling that isn’t the creditors job to the tell the debtor there is no obligation to pay.

Expired debt is defined as those bills that are so old that a statue of limitations prohibits courts from enforcing them.

A divided U.S. Supreme Court ruled that debt collectors can use bankruptcy proceedings to try to collect liabilities that are so old the statute of limitations has expired.

“The result of decision appears to give creditors a free pass to file stale claims without fearing FDCPA liability,” Andrew Muller, a partner at Stinson Leonard Street LLP, said in an interview. “The flip side is that trustees and debtors’ lawyers may be under increased pressure to more closely review claims to determine whether the claims are subject to a statute of limitations defense,” Muller said.

Justice Sonia Sotomayor filed a dissenting opinion in which Justices Ruth Bader Ginsburg and Elena Kagan join. Justice Neil Gorsuch, who joined the court after the case was argued in January, didn’t participate in the ruling.

“Professional debt collectors have built a business out of buying stale debt, filing claims in bankruptcy proceedings to collect it, and hoping that no one notices that the debt is too old to be enforced by the courts,” Sotomayor wrote. “ This practice is both ‘“unfair”’ and ’“unconscionable,”’ she added.

“Debt collectors do not file these claims in good faith; they file them hoping and expecting that the bankruptcy system will fail.,” Sotomayor wrote.

Lower courts had been divided on the issue. The Obama administration backed Johnson in the case.

The case is Midland Funding v. Johnson, 16-348.

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