Addressing what it termed “a deluge [that] has swept through U.S. bankruptcy courts of late” the 11th Circuit Court of Appeals in Crawford v. LVNV Funding, LLC last week held that filing a proof of claim on time barred debt is conduct that violates the Fair Debt Collection Practices Act (FDCPA).
The last payment on the underlying debt was made in 2001 and subject to Alabama’s three year statute of limitations. The debtor filed for relief under the Bankruptcy Code in 2008 during which the current owner of the debt filed a proof of claim. Neither the debtor nor the Chapter 13 Trustee objected to the claim and the Trustee distributed payments to the creditor during the pendency of the bankruptcy case.
Four years later, the debtor filed an adversary complaint in the bankruptcy case alleging that the filing of the proof of claim on the time barred debt violated the FDCPA. The Bankruptcy Court dismissed the complaint in its entirety and the District Court affirmed the dismissal on appeal.
The 11th Circuit reviewed the ever growing number of cases to hold that filing suit on a time barred debt is a violation of the FDCPA and reasoned that filing a proof of claim on a stale debt “creates the misleading impression to the debtor that the debt collector can legally enforce the debt.” The court rejected the creditor’s arguments that filing a proof of claim was not collection activity that was subject to the FDCPA applying the broad definition of debt collection like so many courts before it.
A key factor for the Court was the fact that a “debtor’s memory of a stale debt may have faded and personal records documenting the debt may have vanished, making it difficult for a consumer debtor to defend against the time-barred claim.” While the debtor does have the burden to object to the claim, the fact that the claim is time barred is alone sufficient to sustain an objection under 11 U.S.C. § 502(b)(1). Thereafter, the burden shifts back to the creditor to support its claim. The opinion does not address what other difficulties a debtor may face when objecting to a claim other than to note that the debtor may not be aware that the debt is time barred and thus fail to object to the claim.
Decision Deviates from other Circuits’ Holdings
Interestingly, the 11th Circuit declined to consider whether the Bankruptcy Code preempts the FDCPA in certain situations as the 2nd, 3rd and 9th Circuits have previously held. The 11th Circuit’s opinion in Crawford is another in a growing list of cases to find the collection of time-barred debt to violate the FDCPA.
July 24 Webinar at 2:00 p.m. Eastern
What does this mean for debt collectors going forward? Join Alane Becket of Becket & Lee, LLP and Don Maurice and I as we examine the Eleventh Circuit’s decision and discuss the decisional and statutory law surrounding proofs of claim on time-barred debt.
The Intersection of the FDCPA and the Bankruptcy Code
The 11th Circuit’s decision in Crawford v. LVNV
Other Circuit, District and Bankruptcy court decisions contrary to Crawford
What the CFPB, FTC and other regulators may be thinking about the practice
- Managing risks created by the Crawford decision
This post originally appeared on the Consumer Financial Services Blog, run by ARM defense firm Maurice & Needleman.