The Eleventh Circuit recently joined several circuits in holding that filing a proof of claim in a bankruptcy action based on a debt that is time-barred under state law violates the federal Fair Debt Collection Practices Act (FDCPA). In Crawford v LVNV Funding, LLC, No. 13-12389 (11th Cir. July 2014) the plaintiff consumer owed a debt to a furniture company which sold the debt to a debt collector. The last transaction on the account took place in October of 2001 and under the applicable state statute of limitations any claim on that debt had to brought within three years. When the consumer filed for bankruptcy in 2008, the debt collector nonetheless filed a proof of claim for that debt. The borrower filed a counterclaim, alleging that the debt collector’s attempt to collect a time-barred debt violated the FDCPA. The bankruptcy judge dismissed the counterclaim, and the district court affirmed. The consumer then appealed to the Eleventh Circuit, which reversed. The FDCPA provides that debt collectors may not use false, deceptive, misleading, unconscionable or unfair means to collect a debt. 15 U.S.C. Sec. 1692(e)-(f). Courts have adopted a ”least sophisticated consumer” standard to evaluate whether a debt collection practice runs afoul of the FDCPA. Examining the putative reason behind the debt collector’s practice of filing time-barred proofs of claim, the court noted that ”[a]bsent an objection…the time-barred claim is automatically allowed against the debtor” such that ”the debtor must then pay the debt from his future wages as part of the Chapter 13 repayment plan.” It adopted the reasoning of several federal and district courts which have ”uniformly held” that attempting to collect a stale debt in state court violates the FDCPA. It did not hold that pursuing a time-barred claim by itself is illegal. But because the passage of time since the debt became stale would ”make it difficult for a consumer debtor to defend against the time-barred claim,” filing a time-barred proof of claim ”creates the misleading impression to the debtor that the debt collector can legally enforce the debt.” The court also rejected the argument that filing a proof of claim is not a collection activity within the meaning of the FDCPA. To collect a debt or claim is to obtain payment or liquidation of it, either by personal solicitation or legal proceedings. A proof of claim meets that definition.
Author
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Solomon has nearly two decades of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.
