My colleague, bankruptcy attorney Kevin Chern, discusses a lesser known consequence of the new bankruptcy law in his Bankruptcy Lawyers Blog. It seems that some of the more aggressive bill collectors are (wrongly) advising consumers that bankruptcy protection is not available, illegal or otherwise not an option. This intentional misrepresntation about bankruptcy may be part of the reason that bankruptcy filings are down during the 12 months following the effective date of the new law.
In his October 16, 2006 post entitled “Bankruptcy Attorney Responds to Media Mischaracterization” Kevin reprints a thoughtful letter to the editor penned by South Carolina consumer bankruptcy lawyer Sheryl Schelin. In her letter, Sheryl correctly notes that the new bankruptcy law does nothing to address the root causes of financial distress among consumers.
Although I think that Sheryl may be overstating the issue a little (she relates bankruptcy filing rates to “the underlying oppression of the working poor in America”), I agree completely that overreaching tactics by bill collectors can drive honest, hardworking families into bankruptcy. I can think of several instances where I attempted to negotiate a non-bankruptcy payment plan for a client who came to me with a one debt problem. Inevitably, the judgment creditor or car lender absolutely refused to consider a payment plan and forced us to use the bankruptcy option.
Perhaps Congress should consider adding teeth to the Fair Debt Collection Practices Act. Right now, most of the provisions of this Act only apply to bill collectors, and not to the in-house collection efforts of the actual creditors. More importantly, the Act limits damage recovery to $1,000 plus reasonable attorney’s fees. As you might imagine, this limited opportunity for damages discourages consumers from filing lawsuits in federal court.
In my practice, I have not personally heard many stories of outright lies regarding the new bankruptcy law by bill collectors. Perhaps I am not speaking to affected consumers because they believe the misstatements. If you have experienced this type of misrepresentation yourself or from your clients, please add a comment to this post.