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Illinois Court Rejects Interest Added to Charged-Off Debt

 Posted on April 23,2019 in Debt Collection

Illinois Court Rejects Interest on Charged-Off DebtA creditor will usually charge off a delinquent debt if the debtor has gone six months without paying. By charging off the debt, the creditor is classifying it as a bad debt and will typically:

  • Write off the debt as an asset on its books;
  • Stop sending notices to the debtor; and
  • Stop charging interest on the debt.

Efforts to collect the debt will often continue after it is charged off by either hiring a collection agency or selling it to a debt buyer. Many debt collectors would like to charge interest on a charged-off debt, but courts in Illinois have recently ruled against collectors who do so. If you have purchased a charged-off debt, you risk violating the Fair Debt Collection Practices Act if you charge interest on the debt without authorization.

Recent Case

The U.S. District Court for the Northern District of Illinois recently ruled against a debt buyer who added interest on a charged-off debt it had purchased. In Tabiti v. LVNV Funding, LLC, the defendant was the debt buyer who purchased a charged-off debt worth $10,463. The plaintiff was the debtor who claimed that the defendant violated the FDCPA because it did not have the authority to charge interest after it had purchased the charged-off debt. The court found in favor of the plaintiff in a summary judgment, citing two reasons:

  • The agreement between the original creditor and the debt buyer stated that the unpaid balance excludes any post-charge-off interest; and
  • The original creditor had waived interest on the debt before selling it, which precludes the debt buyer from adding any interest on the debt.

The Northern District of Illinois court made a similar ruling in another case last fall, showing a trend to protect debtors from newly added interest on their charged-off debts. The original creditors have the right to continue to collect interest on a charged-off debt but rarely use it because it would require them to continue to send notices to the debtor about the interest being accrued on the debt. Creditors usually do not want to make that kind of effort on a debt that has already been written off and is unlikely to be repaid.

Contact a Chicago Debt Collection Attorney

Before you charge interest on a debt you have purchased, you should study your purchase agreement to see whether the original creditor waived interest on the debt or specified that you are not entitled to interest on the debt. A Chicago debt collection lawyer at Dimand Walinski Law Offices, P.C., can determine whether you can legally charge interest on the debt. Schedule a consultation by calling 312-704-0771.


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