This class action alleges that Encore Capital Group, Midland Funding, Midland Credit Management, and Asset Acceptance violated RICO and debt collection laws by attempting to claim payment for “stale” debts in Chapter 13 bankruptcy cases.
The proposed class for this action includes all persons who filed a Chapter 13 bankruptcy case in the US where one or more of these companies filed a proof of claim for a debt that they were not the valid owners of or that was time-barred at the time the case was filed, and that they received payment on. The class period is the 48 months prior to the filing of the complaint. There is also a proposed California subclass with a class period of only 12 months prior to the filing of the complaint.
A Chapter 13 bankruptcy case is essentially a repayment plan, allowing an individual who files for bankruptcy to pay back their creditors according to a court-confirmed plan. The debtor makes a monthly payment to the chapter 13 bankruptcy trustee, who disburses the money to pay creditors.
In a chapter 13 bankruptcy case, creditors received a notice containing a bar date by which they must file proofs of claims that serve as the basis for the amounts owed to each. State law controls whether the claims filed are enforceable. If the creditor has no valid right to collect the debt, or if the statute of limitations makes the debt unenforceable ("stale" or “time-barred”), then the proof of claim will be disallowed and the creditor will not be entitled to collect the debt.
Debtors may object to a proof of claim, but in order to do so, they must pay the costs of preparing and filing the objection. If the debts are small, debtors may lose money by objecting to them rather than simply paying them. Creditors may take advantage of this by filing many proofs of claim that they know are not valid, because many debtors cannot afford to object to them.
Encore is a publicly traded company that owns more than thirty subsidiaries. Midland Funding, Asset and Midland Credit are all wholly-owned subsidiaries of Encore. These companies are all are engaged in the collection of delinquent debt.
The complaint alleges that these companies have colluded to distribute their operations among themselves to shield themselves from liability, confuse investigative agencies, and perpetuate their false enterprises. For example, Midland Funding and Asset Acceptance purchase “bad debts” which have been charged off by the original creditors and reports the information to Credit Reporting Agencies, while Midland Credit handles collection activities on those debts, and Asset Acceptance collects the payments.
The complaint therefore charges that they have violated RICO laws in forming a criminal conspiracy and acting in concert with one another to file hundreds of thousands of proofs of claim in Chapter 13 bankruptcy cases even though they are not the owners of the debts or the debts are time-barred. The complain also charges that they have violated consumer debt collection laws.
This case was filed in September, 2015. We will update the status in December, 2015, which should give the defendants enough time to respond.