The primary purpose of bankruptcy is to relieve someone of debt that they are unable to pay. People accumulate debt for a number of reasons, which are not always voluntary. Unemployment, injuries, and the onset of medical conditions are all unfortunate scenarios that people deal with everyday. If a person falls behind on a financial obligation, the debt will eventually be sent to collections if unpaid. Collection agencies are known for bombarding people with incessant letters and phone calls in an effort to pressure someone to pay. It can seem this harassment will never end. There is no limit on how long collection agencies can pursue someone for an unpaid debt, but each state has limits on how long someone can be sued to force payment. This period is called the statute of limitations, and in Indiana, the time limit is six or 10 years, depending on the type of debt. Note, however, that most consumer debt would fall under the six-year provision. This time period starts when the debt first becomes overdue, and continues for as long as the debt remains unpaid. However, if a voluntary payment is made after the debt is time-barred from suit, the statute of limitations starts over, and the debtor is subject to a lawsuit again.

Collection agencies also attempt to assert creditor rights in bankruptcy cases for time-barred debt. While there are rules in place that block collection agencies from receiving money for these debts, the proper procedure must be followed by the debtor. An overview of how collection agencies make a claim in bankruptcy, and how debtors must respond to avoid payment, will be discussed below.

How Collection Agencies Make a Claim

Anyone who files for Chapter 7 bankruptcy must provide a list of creditors to the court. This list is used to send out notices so that creditors may file a proof of claim. These documents are submitted by unsecured creditors in order to make a claim for payment out of the bankruptcy estate. Creditors are only required to file these documents if there will be money available after liquidation of the debtor’s property. If the debtor has no assets, proofs of claim are unnecessary. If a proof of claim is not submitted, the claim will be disallowed, and the creditor is not entitled to any money. A creditor has 90 days from the date of the first meeting of the creditors to file a claim.

Collection agencies troll bankruptcy filings, looking for debtors listed on accounts they own, and automatically file a proof of claim hoping it slips through without notice. Claims are accepted as valid unless an objection is filed.

Debtor Response

Written objections to proofs of claim must be filed with the court at least 30 days before the next scheduled meeting. The objection must include a reason for the opposition that is supported by evidence showing the claim should be disallowed. In Chapter 7 cases, only a “party in interest” is permitted to object to a creditor claim, and debtors usually do not qualify as such. Thus, it is typically left to the trustee to object. Debtors are only permitted to object to a proof of claim if they will be affected by the outcome, which generally occurs if there will be money left over or the claim will survive bankruptcy. In the case of stale debt, the debtor would have a financial stake in the outcome because paying the claim could leave the debtor with less money after the distribution to creditors or result in the debtor owing more money on a debt that is non-dischargeable. Thus, the debtor should and must object to any claim for stale debts and argue that the claim is not owed. This will require more work and attention on the debtor’s part, which is why retaining a bankruptcy attorney is so important to protecting one’s rights.

Contact an Indiana Bankruptcy Attorney

If you are considering filing for bankruptcy, do not attempt this complicated process alone. The rules in these cases are extremely complex and include many deadlines that bring serious consequences if missed. Attorney Christopher L. Arrington represents clients in Chapter 7 bankruptcies throughout the Indianapolis area and can help you get a fresh start. Contact him to schedule an appointment.