Judge Awards $25k in Sanctions Against Collection Law Firm for Attempting to Collect on Discharged Debt

A bankruptcy court judge in Virginia has ordered a collection law firm to pay $25,000 in attorney’s fees to the plaintiffs for violating the discharge of a judgment through bankruptcy by sending a payoff letter to the plaintiffs after the plaintiff requested it.

A copy of the ruling in the case of Skaggs v. Gooch can be accessed by clicking here.

A judgment was entered against the plaintiff for an unpaid cell phone debt in 2000. The plaintiff filed for bankruptcy protection in 2017 and the debt was discharged. In 2020, the plaintiff inherited real estate. While working on selling the real estate, the plaintiff was told by the title agency that he would have to pay the judgment prior to closing the sale of the property.

The plaintiff contacted the defendant, which provided a payoff statement. After receiving the statement, the plaintiff told the defendant that he thought the debt was covered under his bankruptcy filing. The defendant did not scrub the account to see if a bankruptcy had been filed.

After emails back and forth, the defendant offered to settle the judgment for $5,000. The plaintiff filed, suit, alleging the defendant violated the bankruptcy code by attempting to collect on a debt that had been discharged. A judge granted the plaintiff’s motion for summary judgment and awarded the plaintiff reasonable attorney’s fees.

The defendant attempted to argue that the payoff letter was sent at the plaintiff’s request, and acted as an attempt to collect on the debt. The payoff letter even had the mini-Miranda notice indicating it was an attempt to collect.

The defendant also argued that he was required to send the payoff notice because the FDCPA required him to do so.

“Mr. Gooch is correct that the FDCPA applies to his practice, but the FDCPA does not help him avoid sanctions in this case,” wrote Judge Rebecca B. Connelly of the Bankruptcy Court for the Western District of Virginia. “Mr. Gooch failed to show how his collection letters requesting payment of a debt that had been discharged are required under the FDCPA simply because the debtor inquired about the judgment, how sending a request for payment is ‘information about a debt,’ or more to the point, how the FDCPA excuses him from verifying the debt is legally collectible and insulates him from responsibility for attempting to collect a debt that has been discharged in bankruptcy.”

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