Bankruptcy & the Fair Debt Collection Practices Act (FDCPA)

by Jeremy J. Cobb on Dec. 24, 2019

Bankruptcy & Debt Bankruptcy & Debt  Collection Bankruptcy & Debt  Credit & Debt 

Summary: Filing a proof of claim in a chapter 13 bankruptcy case in connection with a debt for which the applicable statute of limitations has passed does not violate the FDCPA.

In May 2017, the United States Supreme Court resolved a conflict among the various United States circuit courts of appeals, siding with, among others, the Eighth Circuit, ruling "that filing (in a Chapter 13 bankruptcy proceeding) a proof of claim that is obviously time barred is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the Fair Debt Collection Practices Act." Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1415 – 1416 (2017).

Prior to the Supreme Court's Midland Funding decision, the Eighth Circuit had declined to follow the Eleventh Circuit's contrary decision in Crawford v. LVNV Funding, L.L.C., 758 F.3d 1254 (11th Cir. 2014) (later overruled by Midland Funding), reasoning that “Crawford . . . ignores the differences between a bankruptcy claim and actual or threatened litigation.” Nelson v. Midland Credit Mgmt., Inc., 828 F.3d 749, 752 (8th Cir. 2016). The court cited the protections of trustees in bankruptcy “who owe fiduciary duties to all parties and have a statutory obligation to object to unenforceable claims.” Ibid. The court reasoned that such distinctions ameliorate the harmful effects of filing a proof of claim on a time-barred debt and remove such filings from the purview of the FDCPA’s proscriptions, as such filings do not implicate the broader purposes of the FDCPA to the extent that “protections against harassment and deception [enshrined in the bankruptcy process] satisfy the relevant concerns of the FDCPA.” Ibid.

Going forward, what this means for creditors having time-barred claims in Minnesota bankruptcy cases, and for the debtors in these cases, is that the pronouncements and ruling of the Eighth Circuit in Nelson remain good law, consistent with the Supreme Court's ruling that filing a proof of claim on a time-barred debt in a chapter 13 bankruptcy case is permitted (or at least not, without more, prohibited by the FDCPA) and does not, by itself, give rise to FDCPA liability.

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