Eighth Circuit BAP Gets it Wrong in FDCPA Case

Posted by NCBRC - July 20, 2015

Filing an accurate proof of claim on a stale debt does not violate the FDCPA. Gatewood v. CP Medical, LLC, No. 15-6008 (B.A.P. 8th Cir. July 10, 2015). Mr. and Mrs. Gatewood filed for chapter 13 bankruptcy and CP Medical, a medical collection agency, filed a proof of claim on a debt that was time-barred under Arkansas law. After the Gatewoods converted to chapter 7, they filed an adversary complaint against CP Medical for seeking payment on a stale debt “as a means of debt collection that is either false, misleading, deceptive, unfair, or unconscionable” in violation of the FDCPA.

The bankruptcy court, relying on Eighth Circuit precedent, found that an attempt to collect on a stale debt is not a violation of the FDCPA. It further found that the Bankruptcy Code provides the only relief available to a debtor in cases such as these. The BAP affirmed.

On appeal, the BAP found that CP Medical’s filing of a proof of claim constituted an act to collect on a debt under the FDCPA. CP Medical argued that unless there is a threat of litigation in connection with its debt collection conduct, there can be no violation of the FDCPA. Citing Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1091 (8th Cir. 2007), the BAP found that filing a proof of claim in a bankruptcy case is an act of litigation.

The panel turned to whether filing a proof of claim on a stale debt constitutes “false, misleading, deceptive, unfair, or unconscionable” conduct. The court noted that the Eleventh Circuit in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), applied a “least sophisticated debtor” standard and found that a proof of claim for a stale debt was an FDCPA violation. However, other courts have found that the protection afforded to the unsophisticated debtor under the FDCPA is not necessary when the debtor is in bankruptcy. In the parallel universe some courts inhabit, all debtors have lawyers and bankruptcy trustees and judges are ever alert to stale claims and avid to protect the rights of the debtors even where there is little benefit to the estate in doing so.

The court quoted Torres v. Asset Acceptance, LLC, ___ F. Supp. 3d ___, 2015 WL 1529297 (E.D. Pa. Apr. 7, 2015) (appeal filed May 13, 2015): “Under these circumstances, the Court will not insert judicially created remedies into Congress’s carefully calibrated bankruptcy scheme, thus tilting the balance of rights and obligations between debtors and creditors.” Id. at *7. Incredibly, this quoted language suggests that permitting debtors to enforce their rights under the FDCPA when they already have the protection of the bankruptcy court, would give them an unfair advantage over creditors trying to slip one by the trustee and court.

The BAP fell short of finding that the FDCPA is wholly precluded by the Bankruptcy Code. It limited its holding to the facts of the case before it, in which it found “[t]here is nothing improper about attempting to collect on a time-barred debt since the debt remains.”

Gatewood BAP 8th opinion

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  1. By Bankruptcy News Briefs 7/20 | NACBA Now on July 20, 2015 at 5:56 pm

    […] Eighth Circuit BAP Gets it Wrong in FDCPA Case […]

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