Circuit Court Rejects FDCPA Claim Based on Alleged Invalid Proof of Claim

Ronald Canter

A recent trend has evolved in Fair Debt Collection Practices Act (“FDCPA”) litigation where courts have allowed bankrupt debtors to file FDCPA claims based on the alleged invalidity of a proof of claim filed by a third party collector and/or debt buyer. But a precedential Circuit Court ruling Tuesday appears to limit the timing of some of those suits.

In Covert v. LVNV Funding, LLC, 2015 WL 877133 (4th Cir. March 3, 2015), the United States Court of Appeals for the Fourth Circuit ruled that the doctrine of res judicata, which bars a second lawsuit where an earlier ruling decided issues between the same parties, precludes a bankrupt debtor’s FDCPA suit challenging the validity of a proof of claim. The Court grounded its ruling on the fact that a debtor’s confirmed Chapter 13 payment plan allowing for payment of filed proofs of claim prevents further consumer litigation based on the purported invalidly of a filed proof of claim.