A U.S. Bankruptcy Court judge in Erie, Pa. refused to dismiss a complaint filed by the Pennsylvania Attorney General's Office against Michael J. Covatto, the former president of Unicredit America Inc., a now-defunct debt collection agency.

The complaint asks that Covatto, despite filing for bankruptcy in March 2011, still be required to pay damages or claims that might arise from another suit the Attorney General's Office has filed against him in Erie (Pa.) County Court.

In that complaint, the Attorney General's Office alleged that Unicredit, with Covatto in charge, engaged in unfair trade practices by operating a fake courtroom to intimidate debtors (see story).

The Attorney General's Office is seeking damages and restitution for Unicredit clients, but has yet to obtain a judgment.

Covatto, 50, has not responded to the claims filed against him. 

The attorney general's Bureau of Consumer Protection went to Bankruptcy Court to argue that Covatto not be allowed to avoid paying any Unicredit-related claims by discharging them as debts in his bankruptcy case. The Bankruptcy Code prohibits the automatic discharge of debts affected by fraud.

Covatto, when he filed for Chapter 13 bankruptcy in March 2011, valued his assets at $122,991, listed liabilities of $272,663 and proposed a plan in which he would repay his creditors $975 a month for two years. Approval of that plan is pending.

Covatto's bankruptcy case has proceeded slowly, partly because he has invoked his Fifth Amendment right against self-incrimination during meetings with creditors (see story).

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