PR - Attempting to Collect Discharged Debt May Not Violate FDCPA: Court

In a case decided by the Northern District of Illinois, the court held attempting to collect a debt that has been discharged in bankruptcy is not a per se violation of the Fair Debt Collection Practices Act (FDCPA), ACA International reported today.

In this long awaited decision, the plaintiff owed a debt to a telephone service company. The debt was purchased by a third party who hired the defendant to collect on the account. The plaintiff later filed for bankruptcy and included the debt in the bankruptcy proceeding. The original creditor received notice of the bankruptcy and the debt was ultimately discharged. The defendant, however, sent the plaintiff a collection letter approximately eight months later in an attempt to collect the discharged debt. The plaintiff’s attorney subsequently informed the defendant of the status of the debt, and the defendant immediately ceased collection efforts.

The plaintiff filed suit alleging the debt collector’s attempt to collect the debt violated § 807 of the FDCPA [which prohibits false or misleading representations] by sending the plaintiff a collection notice when in fact the debt had been discharged in bankruptcy.

After being appealed twice to the U.S. Court of Appeals of the Seventh Circuit, the case was remanded back to district court to determine whether the collection letter to the plaintiff "implied to a reasonably objective, but unsophisticated consumer that the debt discharged in bankruptcy was still payable."

In April 2007, the court ruled in favor of the defendant, holding the plaintiff was not misled because he could not show the collection letter implied "to a reasonably objective, but unsophisticated consumer that the debt discharged in bankruptcy was still payable." The court concluded that while the plaintiff believed the defendant was accusing him of owing the debt, he knew the debt had been discharged in bankruptcy and knew he no longer owed the debt. On January 7, the plaintiff voluntarily dismissed his appeal of the court’s ruling.

This case stands for the proposition that sending a collection letter in the attempt to collect a debt that has been discharged in bankruptcy is not a per se violation of § 807 of the FDCPA. Rather, the plaintiff must first prove the attempt to collect the discharged debt would be misleading to the objective, least sophisticated consumer before a § 807 violation can be found. Equally important to any defense to an allegation that a debt collector violated the FDCPA for communicating with a consumer after a bankruptcy filing is evidence of the policies and procedures the debt collector has in place to prevent such a violation from occurring.

This success could not have been accomplished without the skillful defense presented by MAP attorney, David M. Schultz, Esq. of Hinshaw & Culbertson, LLP, counsel for the defendant in this matter; the leadership, resources and support of NCO Group, a nationwide leader in the credit and collection industry and ACA member; and the vision and commitment of the ACA Legal Defense Fund. The ACA Legal Defense Fund Committee recognized the industry-wide significance of this case at its inception and provided the necessary financial support to continue this case through the legal process to a favorable end.

View the full text of the decision.