Just because a debt is as old as the hills doesn’t mean that a creditor can’t file a claim for it in bankruptcy court.
How about a debt that everyone agrees is way past the statute of limitations? If the debtor is sued in a Massachusetts state court, she can use the statute of limitations as a defense, and will probably win the case.
On the other hand, if the debtor files for bankruptcy, the creditor can file a claim for the debt, and possibly get paid a portion of it, despite the fact that the limitations period is up, according to a recent ruling by US bankruptcy judge Henry Boroff in Worcester.
The debtor had been sued in his local court by debt buyer LVNV Funding on a debt that was past the six-year statute of limitations. But when the debtor filed a Chapter 13 bankruptcy case, LVNV filed a proof of claim on the old debt anyway. The debtor responded by suing his creditor for violating the Fair Debt Collection Practices Act.
But Judge Boroff said this wasn’t a FDCPA violation, even though the debt was old. THs statute of limitations is concerned with the enforcement of a debt, not the existence of one; while the debt might not be enforceable in state court (and hence, uncollectable), it still is in existence, and its legal for them to file a proof of claim form with the bankruptcy court and see if they can get something out of the case.
So the debt buyer might get lucky this time, and recoup a stream of small payments if this debtor is able to complete his Chapter 13 plan.
The case is Claudio v. LVNV Funding, 11-03022.
By Doug Beaton