Filing Proof Of Claim For Time Barred Debt Violates FDCPA, Says Elev...


fdcpa1In the last couple of years, claims against creditors for alleged violations of the Fair Debt Collection Practices Act (FDCPA) have become a hot item in Bankruptcy Courts.  One such question is whether the filing of a proof of claim for a stale debt (i.e., one that has become unenforceable pursuant to the applicable statute of limitations) constitutes a violation.  The Eleventh Circuit Court of Appeals appeared to have answered the question for federal courts in Georgia, Alabama and Florida in the case of Crawford v. LVNV Funding, 758 F.3d 1254 (11th Cir. 2014)(cert. denied) (read opinion here).  According to the Court’s introductory paragraph (which provides a hint to the outcome), there had been a deluge of debt buyers “armed with hundreds of delinquent accounts purchased from creditors—… filing proofs of claim on debts deemed unenforceable under state statutes of limitations.”

The Court began by acknowledging the many courts that have held that the filing of a lawsuit by a collector to collect a stale debt was a violation of the FDCPA.

As an example, the Seventh Circuit has reasoned that the FDCPA outlaws “stale suits to collect consumer debts” as unfair because (1) “few unsophisticated consumers would be aware that a statute of limitations could be used to defend against lawsuits based on stale debts” and would therefore “unwittingly acquiesce to such lawsuits”; (2) “the passage of time … dulls the consumer’s memory of the circumstances and validity of the debt”; and (3) the delay in suing after the limitations period “heightens the probability that [the debtor] will no longer have personal records” about the debt. Phillips v. Asset Acceptance, LLC, 736 F.3d 1076, 1079 (7th Cir.2013)

The Court then extended the reasoning to the filing of claims in Bankruptcy cases, creating a bright line rule that the filing of a stale proof of claim by a collector is a violation of the FDCPA –

Similar to the filing of a stale lawsuit, a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt. The “least sophisticated” Chapter 13 debtor may be unaware that a claim is time barred and unenforceable and thus fail to object to such a claim. Given the Bankruptcy Code’s automatic allowance provision, the otherwise unenforceable time-barred debt will be paid from the debtor’s future wages as part of his Chapter 13 repayment plan. Such a distribution of funds to debt collectors with time barred claims then necessarily reduces the payments to other legitimate creditors with enforceable claims. Furthermore, filing objections to time-barred claims consumes energy and resources in a debtor’s bankruptcy case, just as filing a limitations defense does in state court. For all of these reasons, under the “least-sophisticated consumer standard” in our binding precedent, LVNV’s filing of a time-barred proof of claim against Crawford in bankruptcy was “unfair,” “unconscionable,” “deceptive,” and “misleading” within the broad scope of § 1692e and § 1692f.

Thus, in the Eleventh Circuit, the filing of a stale claim by a collector is a per se FDCPA violation and the debtor can move for disallowance and perhaps even sanctions.  However, in a footnote, the Crawford court stated:

The Court also declines to weigh in on a topic the district court artfully dodged: Whether the Code “preempts” the FDCPA when creditors misbehave in bankruptcy. Some circuits hold that the Bankruptcy Code displaces the FDCPA in the bankruptcy context. Other circuits hold the opposite. In any event, we need not address this issue because LVNV argues only that its conduct does not fall under the FDCPA or, alternatively, did not offend the FDCPA’s prohibitions. LVNV does not contend the Bankruptcy Code displaces or “preempts” §§ 1692e and 1692f of the FDCPA.

This footnote seemed to leave a crack open in the door for collectors to argue that the FDCPA does not apply in Bankruptcy, at least where the Bankruptcy Code might preempt it.  Several courts in the Circuit have broken the door down, basically stripping the Crawford ruling of its effectiveness, based on the finding that the Bankruptcy Code preempts the FDCPA by allowing the filing of proofs of claim without regard to statutes of limitations.  Castellanos v. Midland Funding, LLC, 2016 WL 25918 (Bankr. M.D. Fla. January 4, 2016); Mears v. LVNV Funding, LLC, No. 14-CV-01333, 2015 WL 7067856 (M.D. Fla. Nov. 5, 2015) (the Bankruptcy Code precluded an FDCPA claim for a time-barred proof of claim); Neal v. Atlas Acquisitions, LLC, No. 14-CV-1113, 2015 WL 5687785 (M.D. Fla. Sept. 25, 2015); (same); Moses v. LVNV Funding, LLC, 542 B.R. 5 (Bankr. S.D. Ala. 2015); Johnson v. Midland Funding, LLC, 528 B.R. 462 (S.D.Ala.2015) (Irreconcilable conflict exists between the FDCPA and the Code; Code’s provisions allowing claims preempts FDCPA).  Other courts in Florida and Alabama have taken a contrary position. In re Seak, No. 13-BK-5446, 2015 WL 631578 (Bankr. M.D. Fla. Jan. 22, 2015) (debtor may pursue FDCPA cause of action for filing a time-barred proof of claim); Feggins v. LVNV Funding, LLC, 535 B.R. 862 (Bankr. M.D. Ala. 2015).  Cases in other circuits vary, including some that hold that the filing of a stale claim is not a per se violation of the FDCPA.  See In re Glenn, 2016 WL, 55672 (Bankr. N.D. Ill. January 5, 2016) (after a thorough review of the cases and analysis of the law, held that the filing of a stale claim was not inherently “false, deceptive or misleading” or “unfair or unconscionable,” and thus not a violation of the FDCPA).

I did not find a Georgia Bankruptcy or District Court case on point, at least in a Westlaw search.  With the number of courts ruling on these and other FDCPA issues, and the potential split of authority among Circuit courts, maybe it will reach the U.S. Supreme Court in the next few years.  Until then, it looks like numbers are on the collectors’ side as far as Bankruptcy Courts in the circuit, at least until the Eleventh Circuit gets another chance to address the “deluge of debt buyers armed with hundreds of delinquent accounts.


Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here