Capital One, a major issuer of credit card debt, is fully subject to the bankruptcy laws. Despite its sophistication as a major lender, it routinely flouts the Bankruptcy Code according to sources. Courts and bankruptcy administrators had begun investigations of Capital One to determine if its unlawful conduct is intentional and to what extent it violates bankruptcy laws. Their findings are alarming.
Bankruptcy Protections Were Not Always Available
Bankruptcy as it is known today is surprisingly a modern development. Despite its constitutional origin, voluntary bankruptcies were only permitted in 1841 and developed somewhat more in 1869. But, it was not until 1978 that the familiar bankruptcy process evolved. As the nation matured and recognized the value of a citizen’s “fresh start,” Congress broadened bankruptcy’s appeal and made it more attractive. Though Congress backpedaled and toughened bankruptcy laws in 2005, the general notion that a fresh start should be made available to those unlikely to get out of a financial hole remains.
When a debtor in dire straights and otherwise eligible for a bankruptcy, seeks the protection of a bankruptcy court, all of her creditors are required to cease collections. If the bankruptcy court grants a fresh start by discharging debt, the court forever prohibits those same creditor from collecting included debts. This is the essence of a fresh start. The debtor comes out of bankruptcy able to start anew, the point being that she regains independence and begins contributing to the economy again.
Capital One Found to Violate Bankruptcy Laws
Capital One, on the other hand, apparently believes these provisions are not applicable to it. In fact, a court-appointed expert recently determined that Capital One filed more than 15,000 claims against debtors who had their debts discharged in bankruptcy proceedings. The expert is responsible for determining the extent of Capital One’s violations through a court-monitored investigation. So systemic is Capital One’s alleged violation of the bankruptcy laws providing debtors with a fresh start, the expert uncovered 800 lawsuits filed against Capital One claiming damages under provisions that penalize violations.
Capital One has already scrambled to implement damage control; it agreed to pay more than a hundred aggrieved persons including debtors, attorneys, and bankruptcy administrators who complained to various courts. Of course, its payments were conditioned on the admission of no wrongdoing. And, although it has challenged the expert’s findings, Capital One refuses to identify which of the 15,000 claims were then actually unlawful.
When questioned, Capital One claimed it does not collect debts discharged in bankruptcy, a statement belied by the court-appointed expert who found thousands of such instances.
In an economic climate in which credit card companies are competing for fewer slices of pie, Capital One is hemorrhaging losses. Recently, it was forced to write off about $2.9 billion in uncollectible loans. With almost $3 billion in losses, its apparent why Capital One’s actions are viewed with great skepticism. Hopefully, under the scrutiny of litigation and media attention, Capital One will revisit its practices and choose to respect the Bankruptcy Code.