[1]Written by Craig D. Robins, Esq.The Executive Office of the United States Trustee issued a news release this week stating that the U.S. Trustee just entered into a settlement agreement with Capital One to resolve allegations that the bank attempted to collect on debts that had previously been discharged.
Apparently, a number of consumers across the country filed for bankruptcy years ago, and in the process, discharged their debts to Capital One. When these consumers later filed a subsequent Chapter 13 bankruptcy, Capital One filed a proof of claim in the new bankruptcy case, but on the old debt, even though that debt had been discharged.
Once a debt is discharged, a creditor is forever barred from collecting it, even if the debtor later files another bankruptcy case involving a Chapter 13 payment plan.
The investigation revealed that Capital One filed 15,500 claims totaling approximately $24.7 million on debts that were previously discharged in bankruptcy, and that they received payment of approximately $2.35 million.
The reason for the erroneous claims simply boils down to some very sloppy business practices. Here, Captial One neglected to identify which customers had previously filed for bankruptcy protection — something they should have and could have easily done.
All creditors have an obligation to maintain adequate procedures to ensure that they do not violate the discharge protections that bankruptcy offers. Here, one of the country’s largest banks failed in that regard.
Capital One will refund each consumer or bankruptcy estate with the amount that was improperly collected as a result of the erroneous claim. Consumers and bankruptcy trustees need not take any further action.
In addition, Capital One will also be paying the attorney’s fees of those bankruptcy attorneys who objected to the erroneous claims.
The case that the U.S. Trustee raised this issue in was the In re: Galley Case out of Massachusetts, going back to 2008 (United States Trustee v. Capital One Bank (USA) N.A., Adversary Proceeding No. 08-01272 (Bankr. D. Mass.).
