Smith v. Weltman, Weinberg & Reis Co.

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The Kohn collection law firm sent Dunbar a letter seeking to collect a debt originally owed to a bank. The letter stated that the full balance due was $4,049.08 and offered to settle the debt for $2,631.90, but warned: “NOTICE: This settlement may have tax consequences.” Dunbar was insolvent and filed for bankruptcy six months later. The Weltman collection law firm sent Smith a collection letter seeking to collect a consumer credit-card debt. The letter stated that the balance due was $4,319.69 and invited Smith to contact the law firm to discuss satisfying her debt obligation for a reduced amount but warned: “This settlement may have tax consequences.” Smith too was insolvent and filed for bankruptcy two months later. The debtors filed actions under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692e, alleging that the letters were misleading because they were insolvent and would not have had to pay taxes on any discharged debt. A magistrate and district judge each dismissed the cases, reasoning that alerting debtors that a settlement “may” have tax consequences is neither false nor misleading. The Seventh Circuit affirmed, reasoning that “may” does not mean “will” and insolvent debtors might become solvent before settling their debt, triggering the possibility of tax consequences. View "Smith v. Weltman, Weinberg & Reis Co." on Justia Law