By Richard Roth
Does a debt buyer’s bankruptcy court proof of claim on a time-barred consumer debt violate the Fair Debt Collection Practices Act? Consumers and a debt collector have, in two separate cases, asked the Supreme Court to decide whether the Bankruptcy Code provides a consumer’s sole remedy and, if not, whether the proof of claim misrepresents the nature and legal status of the debt.
Consumers in three consolidated cases have asked the Supreme Court to review a decision by the U.S. Court of Appeals for the Seventh Circuit that none of the FDCPA consumer protection provisions were violated (see Owens v. LVNV Funding, LLC). The petition was filed as Owens v. LVNV Funding, LLC, Dkt. No. 16-315.
In Midland Funding, LLC v. Johnson, Dkt. No. 16-348, the debt collector is challenging an adverse ruling by the U.S. Court of Appeals for the Eleventh Circuit (Johnson v. Midland Funding, LLC). Midland Funding asserts, first, that the Bankruptcy Code blocks the consumer’s FDCPA suit and, second, that if the suit is not blocked, the Act was not violated.
The basic facts in the cases are the same—the consumers filed for bankruptcy relief, a debt collector filed a proof of claim on a debt it had purchased from an earlier creditor, and the claim was disallowed because the statute of limitations had run out. The proofs of claim all accurately stated the origin of the debt, the date of the last transaction, and the date of the last payment—information that would disclose a statute of limitations defense.
Contradictory precedents. The Seventh Circuit decided in Owens that there could be no FDCPA violation under these circumstances. The proofs of claim were not deceptive, misleading, unfair, or unconscionable because they were completely accurate and because the consumers were protected in bankruptcy by both their own attorneys and the trustee. In fact, the Bankruptcy Code assumes that creditors will file claims on stale debts and that those claims will be disallowed, the Seventh Circuit said.
In Johnson, the Eleventh Circuit was considering a narrower issue. It had previously decided that a proof of claim on a stale debt could constitute a misrepresentation (Crawford v. LVNV Funding, LLC), but it had not decided whether the Bankruptcy Code and the FDCPA conflicted in a manner that permitted only one of them to apply.
There was no irreconcilable conflict between the Code and the FDCPA because they have different scopes, different goals, different coverage, and can be interpreted in a way that allows them to coexist, the Eleventh Circuit decided. Arguments by the debt collector that the Bankruptcy Code displaced the FDCPA and by the consumer that the stale debt could not be a bankruptcy claim both were rejected.
The Bankruptcy Code permits debt collectors to fil claims on time-barred debts, the Eleventh Circuit said, but does not require them to do so. A debt collector that chooses to file such a claim opens itself up to the consequences.
Standing. With review requests coming from both sides of the issue, the existence of a conflict among the circuits seems clear. This could influence the Court to grant certiorari in one or both of the cases.
However, there potentially is an additional issue in both appeals. In light of the Supreme Court’s recent decision in Spokeo, Inc. v. Robins, can the consumers establish an injury in fact that gives them constitutional standing to sue, or is filing a proof of claim on a stale debt “a bare procedural violation” that is not actionable?
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