Addressing what it termed a “deluge that has swept through U.S. bankruptcy courts,” the Eleventh Circuit took on the question of “whether a proof of claim to collect a stale debt in Chapter 13 bankruptcy violates the Fair Debt Collection Practices Act (“FDCPA” or “Act”). 15 U.S.C. §§ 1692−1692p (2006). Based on the broad language of the FDCPA, Eleventh Circuit precedent, and the record before it, the court found that it does. Crawford v. LVNV Funding, No. 13-12389 (11th Cir. July 10, 2014).
The debtor owed money to a furniture company which sold off the debt to LVNV Funding. The final transaction on the debt occurred in October, 2001, and, under Alabama law, the statute of limitations for filing a claim on the account expired in October, 2004. When the debtor filed for bankruptcy in 2008, LVNV filed a proof of claim for the debt. The debtor filed a counterclaim in an adversary proceeding under Rule 3007(b), alleging that LVNV routinely filed stale claims and that attempting to claim the time-barred debt violated the FDCPA. The bankruptcy court dismissed the adversary complaint and the district court affirmed.
It was undisputed that the FDCPA applied to the actions of LVNV as a debt collector. 15 U.S.C. § 1692a(6). The court began its analysis with a walk through the dictionary. It traveled through such words as unfair, unconscionable, and deceptive. Finding that these terms are vague, the court adopted an objective, least-sophisticated, consumer standard. The question, therefore, was whether LVNV’s filing a claim that it knew to be time-barred was unfair, deceptive, misleading or unconscionable with respect to a hypothetical least-sophisticated consumer.
The court premised its analysis on the awareness that LVNV’s motive in filing the POC could only be to collect on an otherwise uncollectable debt by slipping it into a chapter 13 plan where, if no objection is raised, it would remain among the legitimate claims. Had LVNV filed or threatened to file suit on a time-barred debt in state court to recover that debt, it would violate §§ 1692e and 1692f of the FDCPA. “That is so because ‘the right to be free of stale claims in time comes to prevail over the right to prosecute them.’” United States v. Kubrick, 444 U.S. 111, 117, 100 S. Ct. 352, 357 (1979). The same philosophy that prevents a debt collector from filing a stale claim in state court, prohibits it from filing a POC in a bankruptcy case. The least-sophisticated consumer may not realize that the debt is uncollectable and fail to object to it, in which case it is automatically allowed under the Bankruptcy Code. Indeed, that is the hope of the debt collector in filing the POC.
The court specifically did not address the issue of whether the Bankruptcy Code “preempts” the FDCPA when the alleged FDCPA violation occurs in the bankruptcy context.
Congratulations to Nick Wooten on this victory.
NCBRC assisted in writing debtor’s brief.FDCPA, statute of limitations