Time Barred Debt: Can We Even Collect?


After the Seventh Circuit’s opinion in McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014), many collectors rightfully wondered whether time barred debt could ever be lawfully collected. In McMahon, the Seventh Circuit slammed a debt collector for a seemingly innocuous dunning letter that sought to “settle” a time barred debt as improperly implying that the debt was legally enforceable. The Circuit’s reasoning was questionable, to say the least. The Court explained that if a consumer received an “offer of settlement” and then “searched on Google to see what is meant by ‘settlement,’ she might find the Wikipedia entry for ‘settlement offer’” and learn that the term is often used in a civil lawsuit.”

This analysis seemed to depart from long-standing unsophisticated consumer standard used to assess debt collector communications. In the past, the Circuit has described the unsophisticated consumer as “not a dimwit”, Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 642, 645 (7th Cir. 2009), and as objectively “reasonable”, Turner v. J.V.D.B & Assocs., Inc., 330 F.3d 991, 995 (7th Cir. 2003). After McMahon, the unsophisticated consumer is also apparently armed with google, Wikipedia, and a bank of common legal terms at her disposal.

Putting aside questionable analysis, however, the question remains: If the Seventh Circuit can take a seemingly innocuous “settlement offer” on a time barred debt and turn it into a potentially misleading communication, can we even collect on time barred debt anymore? The short answer is: Yes, but carefully.

The language in a letter concerning a time barred debt must be carefully scrutinized by client and counsel. Using the right terminology can be key in drafting a proper dunning letter on a time barred debt. Such a letter was recently examined by the Northern District of Illinois in the case of Sorenson v. Rozlin Financial Group. In Rozlin, a consumer filed an action claiming that a letter he received on a time barred debt violated the FDCPA. The collector filed a motion to dismiss arguing that the language in the letter would not lead the unsophisticated consumer to be misled by the communication. The court agreed.

The court explained that the letter at issue did not use language of “settling” the debt but instead spoke of “clearing” and “payment” of a “financial burden”, which did not “carry the same common use in legal circles.” More importantly, the letter explicitly noted the issue of a time bar and stated that the recipient “will not be sued and the obligation will not be reported to credit agencies.” In sum, with proper phrasing and disclaimers, the letter could properly collect on a time barred debt.

For more information about time barred debts or collection letter language, contact the author, Nicole M. Strickler of Messer Strickler, Ltd., who represented the defendant in Rozlin, at (312) 334-3442 (direct) or nstrickler@messerstrickler.com