Debt Collection Protection For Sole Proprietorships

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What is Debt Collection Protection For Sole Proprietorships?

Consumers are protected from unfair collection practices by the Fair Debt Collection Practices Act. Since a sole proprietorship is not a separate legal entity, and, therefore, does not exist apart from the individual owner, then logic would suggest that the Fair Debt Collection Practices Act applies to sole proprietorships. In general, however, the Fair Debt Collection Practices Act does not apply to debts incurred by a sole proprietorship.

Why Doesn't the Fair Debt Collection Practices Act Apply To Sole Proprietorships?

The definition of debt in the Fair Debt Collection Practices Act are those consumer transactions in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes. Purchases and transactions of a sole proprietorship are typically classified as commercial debt because they are primarily for business.

Is There An Exception To When The Fair Debt Collection Practices Act May Apply To Sole Proprietorships?

A few courts have held that the Fair Debt Collection Practices Act applies to debts of sole proprietorships. One Court has stated that the definition of consumer in the Fair Debt Collection Practices Act covers business debts if incurred by a sole proprietor. Another court has stated that the commercial debt has been converted into a consumer debt if the debt collector calls the private residence of the individual and harasses the sole proprietor. 

Although neither case has been directly overruled, both cases have received considerable disagreement by other courts. Furthermore, California, which has adopted an act similar to that of the Fair Debt Collection Practices Act, has specifically stated in Agency Legal Guides that the Fair Debt Collection Practices Act does not apply to sole proprietorships. 

Are There Other Remedies Available To A Sole Proprietor If Debt Collection Is Perceived As Unfair?

Yes, there are other legal remedies available to sole proprietors if they feel that the debt collection is unfair. These remedies include, but are not necessarily limited to:

Should I Seek An Attorney?

Since a sole proprietor is obligated for all the debts and obligations of his/her company, the prospect that a sole proprietor may be subject to unfair collection practices is great. Hiring an experienced attorney will help you determine whether or not you can pursue legal action against a debt collector if they engage in unfair debt collection practices.

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Last Modified: 12-27-2012 02:43 PM PST

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