NACBA has filed an amicus brief arguing that the Eighth Circuit Court of Appeals should find that a debt collector that files a proof of claim for a time-barred debt is subject to suit under the FDCPA. Nelson v. Midland Credit Management, No. 15-2984 (8th Cir.) (filed January 25, 2016). The brief seeks reversal of the district court’s finding that filing a proof of claim for a time-barred debt does not violate the FDCPA.
In its amicus brief, NACBA argues that Midland Credit is a debt collector that acquires time-barred debts and floods bankruptcy courts with proofs of claim seeking to recover on these debts despite knowing that they are unenforceable under the Bankruptcy Code. Midland, and other debt collectors like it, seeks to take advantage of “predictable shortcomings in the bankruptcy process,” whereby parties mistakenly fail to object to these proofs of claim. In the absence of an objection, the Code automatically allows any claim, without regard to validity, thus putting Midland in the position of collecting on meritless claims to the detriment of both the debtor and innocent creditors with valid claims.
When Congress enacted the FDCPA, 15 U.S.C. 1692(e), it did so to protect consumers against just such abusive collection practices. Specifically, NACBA argues that the practice of filing proofs of claims for time-barred debts violates the sections of the FDCPA prohibiting false representation of “the character, amount, or legal status of any debt,” and “using any false or deceptive means to collect or attempt to collect any debt.” It is also an “unfair or unconscionable means to collect or attempt to collect any debt.” The brief seeks to convince the Eighth Circuit to join with the Eleventh Circuit, Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), in finding that filing a time-barred proof of claim may violate the FDCPA and that the Bankruptcy Code did not repeal the FDCPA either explicitly or implicitly in cases, such as these, in which the provisions of both are enforceable without conflict.
Courts finding that debtors in bankruptcy enjoy safeguards that state court debtors do not, are mistaken and miss the point. As a practical matter, bankruptcy attorneys or unrepresented debtors in bankruptcy are not always attuned to the validity of proofs of claim, and trustees cannot reasonably be expected to examine every proof of claim in every case with little incentive to do so. In short, the brief argues that “Midland has no good-faith basis for its filings which is precisely why it throws in the towel when anyone objects. Midland is playing the odds: it knows the process will break down and attorneys and trustees will not catch every invalid claim. Midland cannot avoid the FDCPA merely because its bad-faith scheme does not always succeed.”
NACBA is grateful to Peter K. Stris and Daniel L. Geyser for authoring the brief.
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