Are Debt Collectors Getting Away With Illegal Debt Collection Under The Watchful Eye Of A Chapter 7 Trustee?

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[1] (“FDCPA” or the “Actâ€) 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:

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;

Robert J. Nahoum, Esq.
99 Main Street, Suite 311
Nyack, NY 10960-3109
Ph:     (845) 450-2906
Fax:   (888) 450-8640

[1] 15 U.S.C. §1692 et seq.

Tags: ,