“Debts canceled by bankruptcy still mar consumer credit scores,” but consumers can fight back.

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC

On November 12, 2014, the New York Times published an article entitled “Debts canceled by bankruptcy still mar consumer credit scores.” In the article, the author, Jessica Silver-Greenberg, explains that “Tens of thousands of Americans who went through bankruptcy are still haunted by debts long after — sometimes as long as a decade after — federal judges have extinguished the bills in court.” This article was also featured in the Tampa Bay Times on Friday, November 21, 2014. Lawyers with the United States Trustee Program, a group charged with overseeing federal bankruptcy cases, are investigating certain banks, such as JPMorgan Chase, Bank of America, Citigroup and Synchrony Financial (f/k/a GE Capital Retail Finance), because these banks are suspected of violating bankruptcy law and ignoring the discharge injunction. Section 524 of the bankruptcy code provides a “discharge injunction” where creditors are no longer allowed to pursue debts canceled or discharged in the bankruptcy case. The banks allegedly ignore the discharge injunction when they know (or should have known) the debt was canceled but still seek to collect the debt, whether by continuing to report it on the person’s credit report, sending letters, or making telephone calls about the canceled debt. Often times, these are not clerical errors, but debt-collection tactics. In some cases, the banks purportedly refuse to correct the “mistakes,” insisting that the canceled debt be paid. An example cited in the article was The Vogts, a couple in Denver, who paid JPMorgan $2,582 on a debt that was discharged in bankruptcy because they needed a clean credit report to get a mortgage. In Florida, can you sue a creditor when that creditor attempts to collect a debt that you had previously discharged in bankruptcy? The answer is yes. Although there is no private right of action under the bankruptcy code for violation of the discharge injunction, the courts have recognized that a person could sue a creditor for pursuit of a debt canceled in bankruptcy under both the Fair Debt Collections Practices Act, 15 U.S.C. §§ 1692 et seq. (“FDCPA“) and the Florida Consumer Collection Practices Act, Fla. Stat. §§ 559.55 et seq.(“FCCPA“). See Bacelli v. MFB, Inc., 729 F. Supp. 2d 1328 (M.D. Fla. 2010). In the Bacelli case, the debtor filed chapter 7 bankruptcy in 2008. In her bankruptcy schedules, the debtor listed that she owed $459.15 to St. Joseph’s Hospital in Tampa, Florida. An initial bankruptcy notice was mailed to St. Joseph’s Hospital and, later, a notice of the debtor’s discharge was mailed. Nevertheless, the hospital sent two collection letters and hired a debt collector after the discharge. Ms. Bacelli, the debtor, ultimately sued St. Joseph’s Hospital and its debt collector for violations of the FDCPA and its Florida law counter part, the FCCPA. As reported in Bacelli, “[t]he FDCPA provides a civil cause of action against any debt collector who fails to comply with its requirements. Edwards v. Niagara Credit Solutions, Inc., 584 F.3d 1350, 1352 (11th Cir. 2009) (citing 15 U.S.C. § 1692k(a)). The FDCPA prohibits debt collectors from using any false representation as to the “legal status of any debt.” 15 U.S.C. § 1692e(2)(A). A demand for immediate payment while a debtor is in bankruptcy (or after the debt’s discharge) is “false” in the sense that it asserts that money is due, although, because of the automatic stay (11 U.S.C. § 362) or the discharge injunction (11 U.S.C. § 524), it is not.” Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004) (dicta); see also Ross v. RJM Acquisitions Funding LLC, 480 F.3d 493, 495 (7th Cir. 2007) (“Dunning people for their discharged debts” is prohibited by 15 U.S.C. § 1692e(2)(A)); cf. Turner v. J.V.D.B. & Assocs., Inc., 330 F.3d 991, 995 (7th Cir. 2003)(“Turner I”) (reversing summary judgment in favor of debt collector on claim under 15 U.S.C. § 1692e(2)(A) in part because a reasonable jury could conclude debt collector’s collection letter implied that the discharged debt was still payable). The FDCPA also prohibits debt collectors from using “unfair or unconscionable” debt collection methods, 15 U.S.C. § 1692f, and (with exceptions not relevant here) from communicating with a consumer in connection with the collection of a consumer debt “if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address . . . .” 15 U.S.C. § 1692c(a)(2).” Accordingly, Ms. Bacelli was allowed to sue St. Joseph’s Hospital and its debt collector for the alleged transgressions of the discharge injunction. In short, a Floridian is entitled to sue a creditor under the FDCPA and FCCPA if that creditor continues to report or pursue a debt after the debt has been discharged or canceled by the bankruptcy court. This cause of action might provide relief to the “Tens of thousands of Americans who went through bankruptcy are still haunted by debts long after — sometimes as long as a decade after — federal judges have extinguished the bills in court,” as reported in the New York Times. If you (or you know somebody who) has been pursued by a creditor after the debt has been discharged in bankruptcy, please contact Savage, Combs & Villoch, PLLC, for a free consultation and to speak about your rights under bankruptcy law, the FDCPA, and the FCCPA. Our number is 813-200-0013 or please visit www.savagelaw.us today!