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High Court rules it fair play to file outdated claims

After a recent Supreme Court ruling, Rockland County, New York residents who are contemplating a bankruptcy filing may need to pay more careful attention to the slew of paperwork that follows a bankruptcy.

To give context to the Court's recent opinion, a New York debtor is expected to list everything he or she owns and owes, including unpaid bills and other debts, on his or her bankruptcy paperwork. However, listing a debt only ensures a creditor will get notice of the bankruptcy. In order to get paid, a creditor has to file a claim for payment with the bankruptcy court. If there is money available, the creditor will get a portion of the proceeds.

The Court's recent opinion gives creditors who have stale claims, that is, those which for legal reasons would no longer be collectible in an ordinary court, the option of filing for payment in a bankruptcy proceeding, so long as they are of course up front and honest about the dates at which the person filing bankruptcy incurred the debt. Prior to this decision, there had been arguments that a creditor who filed a so-called "stale" claim violated another federal law, the Fair Debt Collection Practices Act.

The Court was very clear that this does not mean these claims will or even should be accepted and paid, as state laws in New York and other places put a time limit on how long a creditor has to collect a debt, and for good reason. However, it does give the creditor a free roll of the dice to see if the claim can be paid, even if the creditor could not legally attempt to sue for the debt in an ordinary court.

Source: SCOTUS Blog, "Opinion analysis: Justices approve filing stale claims in consumer bankruptcies," Ronald Mann, May 16, 2017

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