May 15, 2017 / 2:26 PM / a year ago

U.S. top court rules in favor of debt collector in bankruptcy dispute

WASHINGTON (Reuters) - The U.S. Supreme Court on Monday handed a victory to debt collectors, ruling that people who have filed for bankruptcy cannot sue companies that try to recoup old debt that is not required to be paid back under state statutes of limitations.

The justices, in a 5-3 decision, ruled in favor of Midland Funding, a subsidiary of Encore Capital Group Inc, which was sued by an Alabama debtor named Aleida Johnson who entered bankruptcy in 2014.

Liberal Justice Stephen Breyer joined four of the court’s conservatives in the majority. Writing for the court, Breyer said Midland’s action was not “false, deceptive or misleading” under the Fair Debt Collection Practices Act, the federal law under which Johnson brought her lawsuit.

Midland sought payment of $1,879 in debt that Johnson had incurred more than a decade earlier. Alabama law sets a six-year statute of limitations for debt to be collected.

Justice Sonia Sotomayor dissented, joined by fellow liberals Ruth Bader Ginsburg and Elena Kagan, and excoriated the business practices of debt collectors.

“Professional debt collectors have built a business out of buying stale debt, filing claims in bankruptcy proceedings to collect it, and hoping that no one notices that the debt is too old to be enforced by the courts,” Sotomayor wrote. “This practice is both ‘unfair’ and ‘unconscionable.’”

Sotomayor also was critical of Midland’s business practices during the January oral argument in the case.

Lawyers for debtors have said it is commonplace for debt collection companies, which buy consumer debt at pennies on the dollar, to try to recoup debt that is not legally recoverable under state law unless the creditor actually agrees to pay it.

If the debtors do not object, claims can be made against them when they have entered bankruptcy even when there is no legal basis for the debt to be collected.

Lawyers for the debt collection companies said bankruptcy law allows them to file such claims even when there is no legal mechanism for them to collect.

Justice Neil Gorsuch did not participate in the ruling because the case was argued before he joined the high court.

Reporting by Lawrence Hurley; Editing by Will Dunham

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