Redressing Debt Collection Abuses In Bankruptcy Court

Some people file bankruptcy mainly to end what they consider to be harassment by debt collectors. Enthusiastic and aggressive bill collectors often use collection tactics that violate protections afforded debtors by the federal Fair Debt Collection Practices Act. Sometimes a bankruptcy will tell their bankruptcy attorney about repeated overly aggressive and illegal debt collection actions which helped drive the client to consider filing bankruptcy. I have been asked several times whether my clients can sue creditors for unfair debt collection as part of their Chapte7  bankruptcy action. 

I have never instituted a FDCPA complaint as part of a Chapter 7 case. For one, I think any recovery for pre-filing collection violations would go to the Chapter 7 trustee to be distributed among creditors. Second, even if my clients recover part of their claim- for example if the recovery was more than enough to pay all their creditors- few of my clients are able and willing to incur the added expense of the lawsuit. 

A trustee could sue a creditor on a debtor’s behalf to assert a pre-filing FDCPA claim. Based on court decisions I’ve seen this type of suit would be considered a “non-core” proceeding because the cause of action did not arise under the Bankruptcy Code, but instead, is based upon non-bankruptcy statutes. Non-core cases could have an effect on the bankruptcy case, but they can also exist outside of bankruptcy.

A bankruptcy court can hear and decide a non-core FDCPA claim because they are related to the bankruptcy case. But, the bankruptcy court cannot enter the final judgment without the parties’ consent in advance. Absent consent, the bankruptcy court’s findings and legal conclusions would constitute a recommendation to the federal district court which would have jurisdiction to enter judgment.