Supreme Court Will Hear Case About Bankruptcy and Fair Debt Collection Practices Act
If you are a resident of the Chicago area who has been harassed by debt collector about an old debt, it is important to pay attention to a recent case that will soon go before the U.S. Supreme Court. According to a recent article in The Wall Street Journal, “the U.S. Supreme Court will decide whether a debt-collection agency can be punished for trying to collect an old credit-card debt from a woman who filed for bankruptcy.”
In short, if you file for bankruptcy protection, can a debt collector continue trying to collect on an old debt? If that debt collection is in fact prohibited under the Fair Debt Collection Practices Act (FDCPA), can the debt collector be punished?
Supreme Court Grants Writ of Certiorari
In order for the U.S. Supreme Court to hear a case, a petitioner first must file a petition for a writ of certiorari. According to a definition from the Cornell Legal Information Institute (LII), a writ of certiorari is a type of writ “by which an appellate court decides to review a case at its discretion.” At the LII definition clarifies, a writ of certiorari is how the U.S. Supreme Court typically picks the cases that it will hear.
In the present case, the debt collection company Midland Funding LLC filed a petition for a writ of certiorari following a lower court decision holding the company accountable for penalties after it attempted “to collect payment on years-old credit-card debt from a person who had sought bankruptcy protection.” The Supreme Court granted Midland Funding LLC’s petition, and as such, the Supreme Court will hear the case.
Conflict Between the Bankruptcy Code and the Fair Debt Collection Practices Act
In agreeing to hear the case of Midland v. Aleida Johnson, commentators emphasize that the Supreme Court has acknowledged that there may be a conflict between the bankruptcy code and the FDCPA. As the article explains, Midland Funding LLC is arguing that “the bankruptcy code precludes the FDCPA, and therefore it shouldn’t face penalties.” To clarify, the bankruptcy code creates a system through which creditors shall be repaid through bankruptcy proceedings, while the FDCPA limits a debt collector’s ability to collect on certain debts and in specific manners.
If the bankruptcy code—which comes into play when a debtor files for bankruptcy protection—permits creditors to be repaid in certain ways, does the FDCPA continue to protect consumers who have filed for personal bankruptcy from debt collection companies’ efforts to collect on old debts?
How Bankruptcy Proceedings Can Be Different
As the article explains, the case will not impact corporate bankruptcy cases. However, its outcome likely will affect both creditors and debtors in consumer bankruptcy cases. Currently, in bankruptcy proceedings, there is a presumption for creditors’ claims unless the debtor specifically objects. However, when bankruptcy proceedings are not underway, a creditor seeking to recoup money from an old debt must provide evidence that the claim is valid.
Why is bankruptcy court different? Usually, debtors are facing many claims—not usually just one—and as a result more creditors may be able to get their claims through. In the present case, the debtor objected to Midland Funding LLC’s claim, and that is how a district court determined that Midland’s debt collection attempts were in violation of the FDCPA. Yet the district court ruled that “the bankruptcy code precluded the debt-collection law,” and as such, Midland Funding LLC could not be subject to punishment. The U.S. Court of Appeals for the Eleventh Circuit also found that Midland violated the FDCPA, but it ruled that the bankruptcy code does not preclude the FDCPA.
We will need to wait and see how the U.S. Supreme Court decides. In the meantime, if you have questions about filing for personal bankruptcy, an Oak Park bankruptcy attorney can help. Contact the Emerson Law Firm today for more information.
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