Sears Sued Over Debt Collection Lawsuit Seeks Restitution For Bankrupt Customers

Sears, Roebuck & Co. was named in a complaint by the U.S. Attorney’s Office in Boston, which is seeking unspecified penalties and restitution for credit-card customers who paid debt wiped out by bankruptcy courts.

Sears agreed to stop the practice nationwide of getting customers in bankruptcy proceedings to repay debt without obtaining court approval, under a preliminary injunction, said Donald Stern, U.S. Attorney. Sears also agreed to do a national audit of its credit-card practices.

The complaint is the latest in a series of legal actions against the retailer in the past week, following its admission that it failed to file the proper papers in some cases after getting bankrupt credit-card customers to keep paying bills.

On Wednesday, a judge approved a motion for a class-action lawsuit against Sears, and several other suits are seeking class-action status. More suits are expected.

“There’s probably not a single jurisdiction right now where this issue isn’t being looked at,” said Paul Brenman, chairman of the Philadelphia Bar Association Bankruptcy Committee.

Sears stock fell $2 to $46.75.

The civil complaint, filed Thursday in federal court, also says that Sears will stop collection activities against certain customers and will provide the U.S. Attorney’s Office with status reports every two weeks.

“Sears’s practice has had the effect of thwarting the entire purpose of bankruptcy, which is to give debtors a fresh start,” Stern said.

Wednesday, a motion by certain creditor-card customers for a national class-action suit was approved for “settlement purposes only” by Carol Kenner, U.S. Bankruptcy Judge for the Eastern District of Massachusetts, according to court papers.

Sears said last week it wanted to settle the lawsuit, meaning it probably will have to pay more than the $400 million it already volunteered to repay wronged customers.