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Supreme Court rules on time sensitive debt collection

Those in South Carolina interested in bankruptcy matters or considering bankruptcy may have more to mull over as the U.S. Supreme Court's May 15 decision created a lot of questions. In Midland Funding, LLC v. Johnson, the court decided 5-3 that federal law is not violated when debt collectors file 'stale" claims.

In bankruptcy proceedings, a creditor may file a proof of claim with the court that shows the amount owed by a debtor. According to the majority opinion written by justice Stephen G. Breyer, filing a time-barred proof of claim does not violate approved practices as the claim is not intended to be false, misleading or deceptive. There was no evidence that Midland Funding knew it submitted a time-barred claim.

The dissenting opinion was written by Justice Sonia Sotomayor, and she argued that debt collectors do not file these claims in good faith. Debt collectors are supposed to be under more scrutiny due to the Fair Debt Collection Practices Act. Additionally, failing to object to a time-barred claim may subject bankruptcy attorneys or trustees to malpractice claims.

This rule may leave the door open for debt buyers to purchase claims that are 20 years old or older. Problems also exist for those using Rule 9011(b) of the Federal Rules of Bankruptcy Procedure. Under this rule, courts can sanction those who submit documents that are frivolous, not supported or intended for an improper purpose.

While the nuances of bankruptcy rules can be complicated and confusing, this should not stop one from considering Chapter 13 when dealing with overwhelming debt. Chapter 13 helps those with an income repay some creditors while discharging other debt. One may also be able to keep possessions under this form of bankruptcy. A person may wish to consult an attorney when weighing options for debt relief.

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