On Tuesday, the Supreme Court of the United States heard arguments over whether a creditor who attempts to collect on a time barred (i.e. zombie) debt can face consequences for that, when the debtor files for bankruptcy. Bankruptcy is a system whereby a person can legally seek a discharge of most legal debts, in exchange for either liquidation (when appropriate, which is rare) in chapter 7, or a repayment plan, when appropriate, in a chapter 13. Sometimes creditors end up with a small dividend. Ironically, there are debt collectors whose business practice is to attempt to cajole and intimidate unknowing people into paying debts that cannot legally be collected upon, because the statute of limitations has passed. Sometimes the filing of a bankruptcy creates a Pavlovian response with these zombie debts, awakening them from the dead, and they try to collect. No harm, no fowl right? But why should they be able to collect legally within the bankruptcy, if the coffin has been nailed shut outside of bankruptcy? And should they face consequences for doing this? Stay tuned.
Here is a more detailed article about the questions that were asked at the oral arguments.