Supreme Court rules filing clearly expired debts in bankruptcy court not punishable
Supreme Court rules filing clearly expired debts in bankruptcy court not punishable

The Supreme Court of the United States [official website] held [opinion, PDF] on Monday that a creditor may seek repayment of a debt even after the statute of limitations period has expired without facing sanctions. The court, in a 5-3 decision, ruled in favor of Midland Funding [official website], a credit management corporation, which was being sued by Aleida Johnson, a resident of Alabama. In 2014 Johnson filed for bankruptcy under Chapter 13 of the Bankruptcy Code [LII materials]. Two months later Midland filed a written statement asserting that Johnson owed Midland credit card debit of $1,879.71. The last activity on the card was more than 10 years before Johnson filed for bankruptcy and well outside of Alabama’s six-year statute of limitations, so Johnson sued Midland arguing [JURIST report] that it violated a late protecting against unfair debt collection practices. Justice Breyer, delivering the opinion of the court, said that the written statement did not fall within the scope of the Fair Debt Collection Practices Act [text] because it was “not ‘false, deceptive, or misleading representation,’ or using any ‘unfair or unconscionable means’ to collect, or attempt to collect, a debt.”

Justice Sotomayor dissented and was joined by Justices Ginsberg and Kagan. In her dissent Sotomayor writes, “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. This practice is both ‘unfair’ and ‘unconscionable.'” She goes on to point out that statutes of limitations do not deter debt buyers. Because statutes of limitations are affirmative defenses, “consumers must appear in court and raise it in order to dismiss the suit.” Consumers, though, often fail to appear in court and as a result debt buyers “have won ‘billions of dollars in default judgments’ simply by filing suit and betting that consumers will lack the resources to respond.”