By Lawrence Hurley / Reuters
October 11, 2016
Paul Whitfield—Getty Images

The U.S. Supreme Court on Tuesday agreed to decide whether people who have filed for bankruptcy can sue companies that attempted to collect old debt from them that was not required to be paid back because of state statutes of limitations.

The justices will hear an appeal filed by Midland Funding, a subsidiary of Encore Capital Group, which was sued by an Alabama debtor named Aleida Johnson, who entered bankruptcy in 2014. Midland sought payment of $1,879 in debt that Johnson had incurred more than a decade earlier. Alabama law sets a six-year statute of limitations for debt to be collected.

Lawyers for debtors have said it is common practice for debt collection companies, which buy consumer debt at pennies on the dollar, to attempt to recoup debt that is not legally recoverable under state law unless the creditor actually agrees to pay it.

If the debtor does not object, claims can be made against them when they have entered bankruptcy even if there is no legal basis for the debt to be collected.

Lawyers for the debt collection companies said bankruptcy law allows them to file such claims even when there is no legal mechanism for them to collect.

The court will hear arguments and rule on the case by the end of June.

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