Words matter when your communications are scrutinized under the Fair Debt Collection Practices Act (FDCPA). For example, there’s a different between “ineligible for bankruptcy discharge” and “presumptively nondischargeable.”
Federal courts quantify that difference through damages. Which brings us to a recent decision from the Second Circuit Court of Appeals.
Berlincia Easterling obtained a student loan guaranteed by the Department of Education in the late 80s. Easterling filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code on August 23, 2001. At that time, she still had student debt. In her bankruptcy petition, Easterling classified her student loan debt as "not dischargeable," and she did didn't subsequently seek to discharge her student loan debt during the course of her bankruptcy proceeding.
Accordingly, Easterling's student loan debt was not discharged upon the conclusion of her bankruptcy proceeding on November 29, 2001; the debt remained due and owing thereafter.
By 2008, Easterling owed even more on her student loan, thanks to interest. And that's when she received a letter from Collecto, which has a contract with the Department of Education to collect overdue student loans. The pertinent language in the letter stated:
*****ACCOUNT INELIGIBLE FOR BANKRUPTCY DISCHARGE*****
Your account is NOT eligible for bankruptcy discharge and must be resolved.
But that's not exactly true, is it?
Student loans are presumptively nondischargeable in bankruptcy. Student loans can only be discharged in bankruptcy if a debtor demonstrates, by a preponderance of the evidence, that requiring their repayment "would impose an undue hardship on the debtor."
To seek an undue hardship discharge of student loans, a debtor must "commence an adversary proceeding by serving a summons and complaint on affected creditors." To succeed in such a proceeding, a debtor must show:
- That she cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans;
- That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
- That she has made good faith efforts to repay the loans.
Easterling sued Collecto on behalf of herself and the 181 other individuals in New York State who had also received the letters, alleging that the letters were false, deceptive, or misleading under the least sophisticated consumer standard. The district court granted Collecto's motion for summary judgment and dismissed her complaint. The court found that the letter wasn't inaccurate unless Easterling reopened her bankruptcy case and made an undue hardship showing.
The Second Circuit Court of Appeals reversed that decision, finding that the letter, which could discourage debtors from fully availing themselves of their legal rights, was exactly the kind of "abusive debt collection practice" that the FDCPA was designed to target.
Words matter: Check the language in your collection letter before you send a letter with FDCPA-sanctionable wording.
- Easterling v. Collecto (Second Circuit Court of Appeals)
- City-Sanctioned Fines Not 'Debts' Under FDCPA (FindLaw's Seventh Circuit Blog)
- There Are No 'Harmless Errors' in FDCPA Violations (FindLaw's Eleventh Circuit Blog)