Research and Statistics

Capital One must repay $340,000 to bankrupt debtors


Capital One must repay $340,000 to credit card users because the company collected old debts that had been discharged in Chapter 13 bankruptcy.

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An auditor will review 650,000 Capital One credit card accounts to ensure that money improperly collected from people whose debts were already discharged in bankruptcy proceedings are returned.

In a settlement announced Oct. 2 by the U.S. Trustee Program, the U.S. Justice Department agency that oversees the bankruptcy courts, Capital One must repay $340,000 to credit card account holders. Under bankruptcy laws, credit card and other debts cannot be collected by creditors if they have been dismissed in bankruptcy proceedings. (See Bankruptcies creeping upward as economy sours, 11 tips for dealing with debt collection and debt collectors.)

Creditors must file “proof of claim” forms with the bankruptcy court detailing how much debtors owe, dates the debts were incurred and whether the debts are secured, such as with property, or unsecured, as in credit card loans. The form establishes which creditors have priority in payment through the bankruptcy courts.

“Capital One filed approximately 5,600 proofs of claim seeking payment of debts that had been discharged in prior bankruptcy cases,” according to trustee program allegations. In the complaint, Capital One acknowledged receiving $340,000 from estates filing for Chapter 13 bankruptcy, but indicated the issuer “has returned most of the improperly obtained payments.”

According to the trustee program, “The auditor will also approve reimbursement to debtors and trustees for actual out-of-pocket costs and expenses, including attorneys’ fees incurred to contest erroneous claims.”

An auditor will review Capital One claims filed from Jan. 1, 2005, up until two years after a consent degree on the settlement is entered in court. The settlement must be approved by the U.S. Bankruptcy Court for the District of Massachusetts. The audit period may be extended an additional year if more than 100 false claims are found in one year.

As of February 2008, Capital One was the fifth largest issuer of general purpose credit cards in the United States, according to SEC documents.

See related: State by state bankruptcy filings, Bankruptcies creeping upward as economy sours, 5 tips for those considering bankruptcy, Bankruptcy law updates make it harder to discharge debts10 tips for dealing with debt collection and debt collectors, Bankruptcy filers save $25 and a lesson on lucrative nonprofits

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