Are All Unsecured Credit Card Debts Collectible in a Chapter 13 if the Claim is Timely Filed?

Facts: A debtor in the Western District of Kentucky files a Chapter 13 case in November 2008. An unsecured creditor, XYZ, files a claim in the case for approximately $10,000.00 with supporting documents showing that the debt was last paid by the debtor in 1990 and XYZ had never taken legal action to pursue collection of the debt.  Debtor objected to XYZ’s claim on the basis that the debt was not collectible under Kentucky state law because the statute of limitations had run.

Analysis of the law: When a debtor files bankruptcy, federal law governs the case.  State law can also be intertwined in federal bankruptcy cases.  With regard to the collectability of debts, if a creditor cannot pursue a collection action in state court, then the creditor is barred from pursuing collection in the bankruptcy court.  The creditor does not get a second bite at the apple if the debt cannot be pursued in state court in lieu of the debtor filing for bankruptcy.  The disallowance of the claim is not automatic; the debtor must raise the objection to the claim or it may otherwise be allowed and paid along with other unsecured creditors in a Chapter 13 case.

Outcome: XYZ’s claim was disallowed and the claim was withdrawn.  Here the debtor made the last payment on the account in 1991 and XYZ never filed a lawsuit for the debt owed.  The debtor filed 17 years later.  Kentucky law requires a creditor who is owed repayment on a debt incurred under a credit card arrangement by a debtor to bring legal action within 15 years.  KRS 413.090.

Comments