What Happens After A Chapter 7 Discharge When the Creditor Sues You?

As a Massachusetts bankruptcy attorney, I regularly tell clients that a Chapter 7 bankruptcy discharge gives you a “fresh start” and that all dischargeable debts are discharged by federal law. Those debts include, but are not limited to, credit card bills, personal unsecured loans, and remaining balances on motor vehicles and home mortgages that have been returned to the lender. They don’t include student loans, some taxes, and numerous other protected debtors.

Recently, however, Capital One Financial Corp, tried to see if they could squeeze a few dollars out of folks who had legitimately filed for Chapter 7 bankruptcy and had their debts discharged. Capital One is the tenth largest bank in the US. For example, a woman from Hawthorne, New Jersey, filed for bankruptcy protection and secured a discharge. Nevertheless, Capital One filed a lawsuit against her for $4,266. Capital One dropped the state lawsuit once exposed, however, in a separate case filed in federal bankruptcy court by the debtor, resulted in litigation.
In the 2008 Massachusetts Capital One case, the US Trustee found 5,600 cases in which Capital One attempted to collect on discharged debts! The investigation began when Massachusetts couple filed bankruptcy, discharged a debt from Capital One, and fourteen (14) years later, Capital One tried to collect on $5,542.50 debt! The company entered into an agreement to turn over 2.2 million bankruptcy claims from 2005 to 2010 for an independent audit. The claim above, while not in Massachusetts, seems to have originated just after that period of time.
In the bankruptcy court audit, it was determined that Capital One had made that “mistake” 15,500 times! Capital One disputes the number but has not provided their own number of mistaken lawsuits notwithstanding the recent settlement in Massachusetts. The total amount of monies in those claims was $24.7 million.
In Mississippi, a bankruptcy judge is demanding discovery from Capital One on the issue of suing people who have already discharged their Capital One debt. The judge is demanding “some proof” that the lawsuits are not a “malevolent effort to go out and collect a debt that’s been discharged.”
There is a huge market in buying distressed debt. Capital One has their own employees do their collection work, thus not giving up on the fees associated with farming out debt collection. However, the aggressiveness of the debt collectors is often illegal.
When a creditor files a “proof of claim” form that debtors file there is a rule that false filings can result in a fine of up to $500,000 and five years imprisonment. It doesn’t seem to be that Capital One has had many fines notwithstanding their behavior. It seems ironic that when individual debtors make a “false statement” the trustees are all over them, often threatening criminal action where the statement was merely a mistake and often of no consequence. Of even less consequence, but of some irony, is that the founder and chief executive officer of Capital One bank https://www.capitalone.com/ is named Richard Fairbank.
How does this affect Massachusetts bankruptcy debtors? If you have Capital One as a creditor, be extra careful of their filings. However, be sure to work with your Massachusetts bankruptcy lawyer to carefully list all debts. Following your Massachusetts bankruptcy, keep your attorney up to date on any and all letters and of course lawsuits by former creditors.