No Conflict Between FDCPA and Code

Posted by NCBRC - May 25, 2016

“The Bankruptcy Code does not preclude an FDCPA claim in the context of a Chapter 13 bankruptcy when a debt collector files a proof of claim it knows to be time-barred.” Johnson v. Midland Funding, LLC, No. 15-11240 (11th Cir. May 24, 2016). In two separate cases, Alieda Johnson and Judy N. Brock sued debt collectors for violation of the FDCPA alleging that they used “false, deceptive, or misleading representation or means in connection with the collection of any debt” (15 U.S.C. § 1692e) when they filed proofs of claim in the plaintiffs’ bankruptcy cases for debts they knew to be time-barred. The district courts granted the debt collectors’ motions to dismiss finding that the Bankruptcy Code permits a creditor to file a proof of claim for which it has a “right to payment,” and that the FDCPA and the Code are irreconcilable. The cases were consolidated on appeal to the Eleventh Circuit.

The case addressed the issue left open in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), where the Eleventh Circuit found that a debt collector violates the FDCPA by filing a proof of claim in bankruptcy on a debt it knows to be time-barred but did not decide whether the Code “preempts” a claim under the FDCPA when the violation occurs in the context of chapter 13. The Eleventh Circuit found that the two federal statutes are not in conflict but may be read together in a coherent way.

In bankruptcy a creditor may file a proof of claim for a debt for which there is a “right to payment,” Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 449, 127 S. Ct. 1199, 1204 (2007), defining a right to payment as “nothing more nor less than an enforceable obligation.” Penn. Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552, 559, 110 S. Ct. 2126, 2131 (1990).

Interpreting these cases, the Johnson court found that the “right to payment” requirement for filing a proof of claim does not require that the creditor also have a viable remedy in bankruptcy under which it can recover on the debt. Therefore, generally, a creditor is entitled to file a proof of claim even for an unenforceable debt. In fact, bankruptcy has a framework for just such a scenario. The trustee is charged with examining proofs of claim and objecting if they do not merit allowance. Upon objection, the court makes a determination as to whether to allow the claim and will not do so if it is time-barred. Thus, the Code anticipates the possibility that not all proofs of claim will be allowable. While a creditor is free to file a proof of claim on a time-barred debt, however, he does so at his peril. A debt collector who files a time-barred claim is subject to civil liability for violations of the FDCPA.

The tension identified by the district court between the creditor’s right to file a claim, even for a time-barred debt, and the FDCPA’s prohibition against debt collectors seeking recovery on a time-barred debt, does not create an irreconcilable conflict requiring that the Code override the FDCPA. Where repeal by implication is disfavored, a court must attempt to reconcile federal statutes if possible. “We will not infer a statutory repeal unless either the later statute expressly contradicts the earlier statute or this construction is absolutely necessary in order for the later statute to have any meaning at all.”

The court found that because the FDCPA and the Code differ in scope, goals and coverage, they may be interpreted in such a way that they can coexist. The FDCPA is limited to a subset of creditors and extends to conduct both in and outside the bankruptcy context. The Code establishes the right to file a proof of claim, the FDCPA creates consequences for doing so. Where the Code contemplates disallowance of a claim or, in the case of misconduct with respect to that claim, sanctions under the court’s inherent power under section 105, the FDCPA adds a layer of consequence for a specified group of creditors over what the Bankruptcy Code provides.

The court rejected the creditors’ argument that its decision effectively precludes the filing of a proof of claim in the first place. Comparing the claim to filing a frivolous lawsuit, the court found the debt collector seeking to collect a time-barred debt through bankruptcy acts may do so at the risk of exposure to the consequences of such filing under the FDCPA.

In the absence of a directive by Congress that the two statutes are mutually exclusive, or a provision in either statute directing their interaction, the court concluded that the Code and the FDCPA do not irreconcilably conflict and a debt collector subjects himself to the provisions of the FDCPA when it files a proof of claim for a time-barred debt.

Johnson 11th Cir opinion May 2016


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