The filing of a time barred claim in a Chapter 13 Case may subject the credit to sanctions for violating the Fair Debt Collection Practices Act (FDCPA)
The filing of any case under the United States Bankruptcy Code may result in a creditor filing a proof of claim in order to share in the division of the Debtor's assets. Properly filed Proofs of Claim are treated as valid on their face until someone objects to them as bing time barred, disputed or invalid. In a recent case argued before the UNITED STATES SUPREME COURT, Midland Funding, LLC v Aleida Johnson, Docket No 16-348, a debtor argued that the filing of a proof of claim on a debt that is time barred by the statute of limitations violated the Fair Debt Collections Practices Act (FSCPA). Generally, credit card default claims become unenforceable after 6 years from the date of the default, where other loan default may be pursed up to 20 years if the documents are signed "under seal". When a creditor sits on their rights, and the court concludes that the claim is stale or is brought beyond the applicable statute of limitations, the court must deny the claim. On the other hand and in the past, when a debtor filed a bankruptcy petition, the statute limitations did not bar a creditor, at least in Massachusetts, from making a claim for a distribution from the Debtor's Estate
This may be about to change..... if the Supreme Court determines, in Midland, that the filing of the proof of claim after the statute of limitations has expired violates the FDCPA, the Debtors who have assets to distribute in a bankruptcy may find that many of the claims that could have been pursued against them, no longer are valid and may subject the creditor to sanctions for unfair debt collection practices upon the filing a Proof of Claim.
This case was argued before the U.S. Supreme Court on January 2017, it is unlikely that we will hear from the Court until the end of the year. We will update you when the Court makes its decision
The contents of this article are not to be construed as legal advice or an obligation to act for any particular person. The opinions expressed are those of the author.