One of the first things that most collectors and debt buyers do after receiving a new account or portfolio of accounts is make sure that none of the individuals have filed for bankruptcy protection. Section 1006.30 of Regulation F, more commonly known as the Consumer Financial Protection Bureau’s Debt Collection Rule is essentially the reason for that they do that. Under the regulation, which includes many of the provisions from the Fair Debt Collection Practices Act, collectors are barred from attempting to collect on a debt which has been paid or settled or discharged in bankruptcy. And, as John Bedard from Bedard Law Group points out in this episode of “You Wanted a Rule, You Got a Rule,” what defines a debt collector can be an expansive term.
In many cases, debt buyers can also be considered to be debt collectors, Bedard points out, and when that is the case, they, too, are prohibited from placing for collection any account that has been paid, settled, or discharged in bankruptcy. Bedard notes that there are a few exceptions to this provision, such as when the collector is transferring the debt back to the original owner.
This section of Regulation F also deals with what happens when an individual has multiple debts owed to the same agency and that individual makes a payment. If one of the debts is disputed, Bedard says, the collector is prohibited from applying the payment to the disputed debt. Collectors are also required to follow the consumer’s instructions with how the payment is to be applied.
The section also details how and where collectors can file lawsuits against individuals for unpaid debts. As Bedard notes, the lawsuit has to be filed in the judicial district where the property is located, which mostly deals with foreclosures. But all other actions, Bedard says, must be filed either where the consumer signed the contract or where the consumer resides at the time of the filing of the action.
“Often, the consumer will have signed the contract in the very same Judicial District and where they reside, and that’s fine,” Bedard said. “Under those circumstances, there’s only one correct place to file a lawsuit against the consumer. And that’s in the Judicial District of where they reside and where they signed. However, sometimes consumers enter into contracts and sign contracts in places other than where they reside. And when that happens, the law says that the debt collector is allowed to choose one of those two alternatives — where they signed the contract that you’re suing on or where the consumer resides at the time the commencement of the action.”
