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Appeals judges rule that debt collector lawsuit can continue

On Behalf of | Oct 29, 2018 | Personal Bankruptcy |

Debt collectors in California and around the country have been known to take legal action against consumers over debts that were taken out by identity thieves or other malicious individuals. These lawsuits are generally dismissed with prejudice once the true provenance of the debt has been established, but that does little for consumers who have had to spend significant amounts of time and money defending themselves.

Efforts to hold debt collectors accountable under the provisions of the Fair Debt Collection Practices Act have not fared well in these situations because the courts have been reluctant to classify an individual who did actually not take out the loan in question as a consumer, but the legal landscape changed on Oct. 18 when a panel of federal appeals judges took a different position. The 1977 law defines a consumer as an individual who is obligated or purportedly obligated to pay a debt. This has stymied FDCPA lawsuits against debt collectors because the consumers behind such litigation do not actually owe or allege they owe any money to the defendants.

The U.S. Court of Appeals for the Seventh Circuit determined that this limited definition of what a consumer is was contrary to the overall aims of the FDCPA, which was passed to rein in some of the more dubious practices of the debt collection sector. The appeals judges decided to close this loophole by extending the term consumer to apply to individuals alleged by debt collectors to owe an obligation.

Daily harassment from debt collectors is often the spur that prompts consumers to take action and file for bankruptcy. Attorneys with debt relief experience could point out to those considering this course of action that filing a Chapter 7 or Chapter 13 personal bankruptcy petition generates an automatic stay that requires creditors to cease all of their collection efforts.