What constitutes a debt? The definition seems to change by the day. A District Court judge in Connecticut has denied a defendant’s motion for judgment on the pleadings, ruling the debt in question does meet the Fair Debt Collection Practice Act’s definition of a debt and that the suit should proceed.
The Background: In January 2021, the plaintiff leased a car through Hyundai. Under the terms of the lease, Hyundai was the registered owner of the vehicle and the plaintiff agreed to pay Hyundai any amount of personal property or other taxes that were applicable to the vehicle while she was leasing it.
- The car was damaged and declared totaled in October 2021. A year later, the defendant sent the plaintiff a letter, seeking to collect $889.12 that was allegedly owed to Hyundai. The letter included a document that stated the plaintiff owed her city’s tax collector, but did not clearly define the source of the debt.
- The plaintiff learned the debt stemmed from a property tax assessment after the car was declared totaled and that Hyundai could seek an abatement.
- The plaintiff send Hyundai a letter, formally requesting it seek the abatement and requesting that the debt not be reported to the credit bureaus. She did not pay the debt because she believed it was a fraudulent attempt to collect money that was not owed.
- The plaintiff filed suit in November 2022, at which point the defendant began to make its point that the debt in question does not meet the FDCPA’s definition of a debt.
The Ruling: In most cases, taxes and debts that are owed to a government agency or entity are not considered debts covered under the FDCPA. but digging into the caselaw, Judge Victor A. Bolden of the District Court for the District of Connecticut looked at a test established by the Court of Appeals for the Third Circuit — whether the tax obligation at issue arises out of an underlying transaction or whether it simply arises by virtue of a given legal status.
- The two parties disagreed on which section of the town’s tax code the debt applied. Judge Bolden sided with the plaintiff, who argued the obligation arose out of a transaction because it could be traced to the terms of the lease agreement. The plaintiff’s obligation to pay the taxes arises “solely from the lease contract, which is based on a transaction,” Judge Bolden wrote.
- Because there remains a factual issue over which statute of the town’s tax code applies, the judge denied the defendant’s motion.
