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U.S. Supreme Court issues ruling on expired debts and bankruptcy

Illinois residents may be interested to hear that the United States Supreme Court recently issued a ruling that gave debt collectors permission to seek repayment of debts from those going through the bankruptcy process, even if those debts had since expired. The Court found that creditors are under no duty to notify debtors that the debtors need not make payments on expired debts.

Expired debts are debts that cannot be enforced due to the passing of the applicable statute of limitations. Even though courts, for the most part, cannot order that expired debts be paid, most states in the nation still permit creditors to attempt to collect on the expired debt. However, this particular case centered on whether this can be allowed if the debtor is going through the bankruptcy process, despite the fact that through personal bankruptcy, the statute of limitations allows the expired debt to be dismissed.

The federal appeals court in this case ruled that if creditors tried to reach out to a bankruptcy court to collect expired debts, that this was a violation of the Fair Debt Collection Practices Act. Under this act, the appellate court ruled, collecting on expired debts in this way was "unfair or unconscionable" and that representing that such collections could be made was "false, deceptive or misleading."

The U.S. Supreme Court disagreed however. In its five to three ruling, it held that the official bankruptcy trustee most likely knows that claim can be dismissed if it is legally unenforceable. Therefore, creditors should not be burdened with the duty of showing that the debt at issue is in fact can be enforced legally prior to filing the debt with the appropriate bankruptcy court. The dissenting justices, however, stated that most debtors do not understand their legal rights, and that bankruptcy trustees who are already overburdened, would be facing a 'deluge' of expired debt to deal with. In the end, the dissenting justices believed that it is not fair for a debt collection agency to profit from another person's "inadvertent inattention."

While this ruling may be concerning for debtors going through bankruptcy, they should not lose hope. With legal help, they may be able to ensure that they are not being strong-armed into paying debt that they no longer owe.

Source: The Wall Street Journal, "Supreme Court Sides With Collectors Over Expired Debts in Bankruptcy Cases," Jess Bravin, May 15, 2017

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