by: Robert J. Nahoum
A Chapter 7 bankruptcy trustee represents the estate of Chapter 7 bankruptcy debtors and is responsible for recovery, preservation, liquidation and distribution of the Chapter 7 estate assets. Among the property of the estate are causes of action or lawsuits for wrongful damage caused to the debtor. For example, if the debtor was injured when hit by a car running a red light, the claim against the driver is an estate asset for which the Chapter 7 trustee is responsible to pursue.
The federal Fair Debt Collection Practices Act (“FDCPA” or the “Act”) provides a private right of action to consumers who have been the victim of illegal debt collection practices. Those found to have violated the Act may be liable to the consumer for at least $1,000.00 in statutory damages, as well as actual damages, including attorneys’ fees and costs.
II. The Problem
At the early stages of the Chapter 7 bankruptcy case, the debtor attends a meeting of creditors called a 341 meeting. The 341 meeting is an informal, short meeting and often the only legal proceeding the debtor must attend during the case. The purpose of the meeting is to ensure that the debtor fairly and honestly represented his or her assets, income and debts. The Chapter 7 trustee asks the debtor questions, under oath, about his or her finances, property and other assets.
The Chapter 7 trustee’s primary goal at the 341 meeting is to determine if there are assets to be administered and if so, to liquidate them for payment to creditors. If an asset is discovered, the chapter 7 trustee may file a motion or bring an adversary proceeding (which is a lawsuit filed within the bankruptcy case), in the bankruptcy court.
It’s no great leap of faith to assume that bankruptcy debtors have been hounded by debt collectors, some of whom have likely violated the FDCPA. If these debt collectors did violate the FDCPA, a claim against them is an asset belonging to the estate for which the Chapter 7 trustee is responsible for pursing. The question is, are they? All indications are that they are not.
In fact, nowhere in the over 200 page Handbook for Chapter 7 Trustees is there even a mention of the FDCPA. The appendix to the Handbook includes a script for Chapter 7 trustees to use at the 341 meetings, nowhere in the script can you find questions relating to debt collector harassment. What’s more, collection letters (where most FDCPA violations are found) are NOT included in the records necessary to complete the Chapter 7 bankruptcy petition.
Considering this, the question is, are debt collectors getting away with illegal collection activities under the watchful eye of a Chapter 7 trustee? The unfortunate answer is, probably yes.
III. The Solution
As part of their fiduciary duty owed to debtors’ estates, Chapter 7 trustees should be investigating and pursuing FDCPA claims. To do so is a win-win for everyone (except of course the unscrupulous debt collector). This is particularly true when considering that the FDCPA is a fee shifting statue in which, if found liable, the debt collector must pay the attorneys’ fees of the consumer. So, prosecution of an FDCPA claim will come at NO COST TO THE ESTATE.
Prior to the 341 meeting, the debtor and his or her counsel should be instructed to bring with them for inspection any and all collection letters they received in the preceding 12 months (FDCPA has a 1 year statute of limitations). At the 341 meeting, the Chapter 7 Trustee should ask questions of the debtor relating to debt collector harassment. For example, the trustee should ask:
- Are there some communications where debt collector did not indicate they are from a debt collector? (15 U.S.C. §1692e(11))
- Did the debt collector fail to send the debtor a validation notice within five days of the initial communication, either written or oral? (15 U.S.C. §1692g)
- If the debtor made a timely validation request (within the first 30 days of the initial communication from the debt collector), did the collector continue collection activities? (15 U.S.C. §1692g)
- Does the communication contain a false impression of the character, amount, or legal status of the alleged debt? (15 U.S.C. §1692e(2))
- Does the communication give the false impression that any individual is an attorney or that any communication is from an attorney? (15 U.S.C. §1692e(3))
- Does the communication threaten to take any action that cannot legally be taken or that is not intended to be taken (e.g. suit, harm to credit reputation)? (15 U.S.C. §1692e(5))
- Does the communication give the false impression that the debtor committed any crime or other conduct in order to disgrace the debtor? (15 U.S.C. §1692e(7))
- Has the debt collector used any other false, deceptive, or misleading representation or means in connection with the debt collection? (15 U.S.C. §1692e(10))
- Does the debt collector attempt to collect any amount (including interest, attorney fees, collection costs or expenses) not authorized by the agreement creating the debt or permitted by law? (15 U.S.C. §1692f(1)
- Has the debt collector taken or threatened to unlawfully repossess or disable the debtor’s property? (15 U.S.C. §1692f(6)
- Does the debt collector use any other unfair or unconscionable means to collect or attempt to collect the alleged debt (e.g., collecting time barred debts that are older than 6 years, filing suit without legal authority)? (15 U.S.C. §1692f)
- Has the debt collector used or threatened the use of violence or other criminal means to harm the debtor or his/her property? (15 U.S.C. §1692d(1))
- Has the debt collector used profane language or other abusive language? (15 U.S.C. §1692d(2))
- Has the debt collector caused the phone to ring or engaged any person in telephone conversations repeatedly? (The telephone is hung up and collector calls back immediately?) (15 U.S.C. §1692d(5)
- Has the debt collector engaged in any other conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of the alleged debt?(15 U.S.C. §1692d )
- Has the debt collector communicated with the debtor after it knows the debtor to be represented by an attorney? (15 U.S.C. §1692c(a)(2))
- Has the debt collector contacted the debtor’s place of employment when the debt collector knows or has reason to know that the debtor’s employer prohibits such communications (after the debtor told the debt collector to not call him/her at work)? (15 U.S.C. §1692c(a)(3))
- Has the debt collector contacted the debtor after the debtor has notified the debt collector in writing that the debtor refuses to pay the debt or that the debtor wishes the debt collector to cease further communication? (15 U.S.C. §1692c(c))
- In communications with persons other than the debtor, has the debt collector stated that the debtor owes any debt? (15 U.S.C. §1692b(2))
- In communicating with persons other than the debtor, has the debt collector contacted that person more than once (unless requested to do so)? (15 U.S.C. §1692b(3)).
By not asking these questions, and by not conducting this sort of an investigation, not only might the Chapter 7 trustee be allowing unscrupulous debt collectors to get away with violations of federal law, but the trustee might also be missing the liquidation of potentially valuable assets on behalf of the estate.
The foregoing is for informational purposes only and is not legal advice. For legal advice, you should consult a qualified licensed attorney.
About the Author
Robert Nahoum is a New York State attorney practicing consumer protection and general litigation in the Tri-State Area including New York City, Westchester, Rockland, Nassau and Suffolk. His practice includes Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), putting an end to illegal debt collection practices and debt collection harassment, debtor’s rights and mortgage foreclosure defense.
Contact The Law Offices of Robert J. Nahoum, P.C today to see if you have a case against a debt collector (845) 450-2906; www.FDCPAAttorney.net
 15 U.S.C. §1692 et seq.