FDCPA claims are common overlooked assets of the bankruptcy estate

Too much debt! Phones ringing off the hook! Debt collectors are hiding out in the shrubbery behind the house. The debtor finally files for bankruptcy. A bankruptcy estate is created. A trustee is appointed with a fiduciary duty to creditors, the trustee must pursue all assets of the bankruptcy estate.

The trustee requests a mountain of paperwork in preparation for the 341 meeting, but no collection letters. No evidence of potential debt collector harassment is asked for. Why?

Anyone who has practiced bankruptcy law, knows that trustees take their jobs very seriously. The rules incentivize them to find and sell assets, allowing 25% of what is sold to be pocketed in fees. Each trustee has a different style, but all are serious when it comes to assets.

Except one. FDCPA claims.

In the bankruptcy court, if you have a claim you have an asset. It’s not just the living room furniture that ends up on schedule B. Debtors must list any actionable claims they are entitled to pursue or lose them. As Washington attorney, Jay Jump explains:

Bankruptcy law requires that you include all of you assets and all of your liabilities. Assets can also include potential cases you may have against other people such as FDCPA claims, Personal Injury Claims, or even small claims judgments. All of these are assets in your estate because the possibility exists that they could be converted into money for distribution to creditors.

New York litigator Rob Nahoum makes an interesting point:

Nowhere in the over 200 page Handbook for Chapter 7 Trustees is there even a mention of the FDCPA. The appendix to the Handbook includes a script for Chapter 7 trustees to use at the 341 meetings, nowhere in the script can you find questions relating to debt collector harassment. What’s more, collection letters (where most FDCPA violations are found) are NOT included in the records necessary to complete the Chapter 7 bankruptcy petition.

In light of the sheer number of FDCPA cases that are filed by bankruptcy attorneys all across the country, it is a wonder that more trustees have not begun inquiring more directly into these cases. The apparent lack of oversight is even more surprising when the fee shifting provisions of the FDCPA are considered. Although an FDCPA violation usually only nets a fairly modest $1,000 in statutory damages, the attorney’s fee awards can be substantially higher.

Pursuing FDCPA claims is not the equivalent of trustees going after aquarium fish, FDCPA claims have meat. In monetary terms, failure to look into the FDCPA is the equivalent of ignoring the debtor’s household furnishings or old car. Both unthinkable in the average trustee’s office. The culprit is the onerous document production requirements imposed by BAPCPA which crowd out smaller, more subtle issues such a the FDCPA.

Ironically, it’s the creditors who lose out.