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Consumer Protection & Privacy

Is the Filing of a "Stale" Proof of Claim a Violation of the FDCPA?

 by Jeana R. Long

Last year, the Eleventh Circuit was the first to hold that a debt collector engages in deceptive, misleading, unfair, or unconscionable conduct in violation of the Fair Debt Collection Practices Act (the "FDCPA") by filing a bankruptcy proof of claim on a debt that is barred by the applicable statute of limitations. Crawford v. LVNC Funding, LLC, 758 F.3d 1254, 1261 (11th Cir. 2014) [subscribers can access an enhanced version of this opinion: | Lexis Advance].

In Crawford, a creditor filed a proof of claim on a time barred debt and the trustee and the debtor failed to object to the claim. The debtor filed an adversary proceeding, alleging that the creditor's conduct violated the FDCPA. The Eleventh Circuit reasoned that since the filing of a lawsuit to collect a time barred debt violates the FDCPA, so does the filing of a proof of claim on a time barred debt. The court opined that "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."

However, the 'abusive' act of filing a time barred proof of claim is not a violation of the FDCPA in most other jurisdictions. The United States Supreme Court's denial of certiorari earlier this year predictably brought a flurry of opinions. And the vast majority of courts refused follow the Crawford rationale. Martel v. LVNV Funding, LLC, 2015 Bankr. LEXIS 3465, at *4 (Bankr. D. Me., October 13, 2015) [ | Lexis Advance].

Recent opinions note significant differences between a lawsuit initiated to collect on a time barred debt and the filing of a proof of claim filed on a time barred debt. Martin v. Quantum3 Grp. (In re Martin), 2015 Bankr. LEXIS 3450 (Bankr. N.D. Miss. Oct. 9, 2015) [ | Lexis Advance] (finding "the filing of a time-barred proof of claim cannot serve as the basis for an FDCPA violation, as the running of a statute of limitations is an affirmative defense and not "part of the affirmative claim") (citing Johnson v. Midland Funding, LLC, 528 B.R. 462, 471 (Bankr. M.D. Ala. 2015); Perkins v. LVNV Funding, LLC, 533 B.R. 242 at 261 (Bankr. W.D. Mi. July 8, 2015) ("[B]ankruptcy cases, unlike collection actions, provide debtors with the benefit of the automatic stay... [which prohibits debt collectors] from taking actions to collect debts absent relief from the stay or an exception thereto. The debt collector is therefore limited in a bankruptcy to the filing of a proof of claim, unlike in a collection action where the debtor is forced to immediately respond to a complaint filed by the debt collector even though the statute of limitations has expired.")

Recent opinions further reason that debtors in bankruptcy proceedings do not need protection from abusive collection methods that are covered under the FDCPA because there are procedures in place to object to proofs of claim and the presence of a trustee who is tasked with examining and objecting to proofs of claim which are unenforceable. Martin v. Quantum3 Grp. at *9 (noting "the FDCPA is intended to protect against abusive collection practices, but a debtor in bankruptcy court needs no such additional protection, as the claims process is highly regulated and court controlled").

Lastly, several courts have pointed out that stale claims are permitted (and even encouraged) under the Bankruptcy Code and the claim filing process. See Torres v. Calvary SPV I, LLC, 530 B.R. 268, at 272-74 (Bankr. E.D. Pa. 2015) ("[N]ot only does the Bankruptcy Code permit time-barred claims, it encourages them") [ | Lexis Advance]; Martin v. Quantum3 Grp. at *5 ("[T]he Plaintiff is 'insisting that the Defendant comply with the [FDCPA] by surrendering its right under the [Bankruptcy] Code to file a proof of claim on a time-barred debt.")

This issue is on appeal in multiple circuits. Until the recent opinions work their way through the appeals process, the implications of Crawford remain uncertain, and whether a creditor does or does not file a time-barred claim remains dependent on where the bankruptcy case is pending. 

 Read more articles about the Consumer Financial Protection Bureau at Dykema’s CFPB Blog

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