U.S. Supreme Court holds that a debt collector who files a time-barred proof of claim is not engaging in false or deceptive conduct under the FDCPA.

A debt collector who files a time-barred proof of claim is not engaging in false or deceptive conduct as defined by the FDCPA, according to a recent decision by the US Supreme Court.

In Midland Funding, LLC v. Johnson, 16-348, (May 15, 2017) the debtor filed a Chapter 13 Bankruptcy in the Southern District of Alabama. The defendant debt collector filed a proof of claim for a credit card debt accrued more than 10 years prior to the petition. The debtor objected contending that Alabama’s applicable statute of limitations of 6 years had run. The Bankruptcy Court disallowed the claim.

The Debtor then sued under the FDCPA. The district court found the FDCPA did not apply because the filing of the proof of claim fell outside the FDCPA and dismissed the action. The Eleventh Circuit disagreed and reversed the District Court. The debt collector filed a petition for certiorari on the question of whether the conduct at issue is false or deceptive within the meaning of the FDCPA.

Consistent with the majority of Courts of Appeals, the Supreme Court determined that the filing of a proof of claim which on its face indicates that the limitations period has run is not false, deceptive, misleading, unconscionable or unfair under FDCPA. The proof of claim falls within the Bankruptcy Code’s definition of a claim. Alabama’s law, like the law of many states, provides that a creditor has a right to payment of a debt even after the limitations period has ended.

The Code merely defines a claim as a “right to payment”; there is no condition that the claim must also be “enforceable.” If a claim is unenforceable it will disallowed under Section 502(b)(1). But the Code does not state that an unenforceable claim is not a claim. If a claim is ultimately unsuccessful, it is unenforceable. However, the Code makes it clear that such claim is still a “right to payment” and thus is a “claim” under the Code. Therefore, the filing of a stale proof of claim is not false, deceptive, misleading, unconscionable, or unfair within the meaning of the FDCPA.

The Court found nothing misleading about the Bankruptcy court treating an “unenforceable” claim under the statute of limitations as an affirmative defense. Such conduct is not misleading because a bankruptcy case involves a trustee who must examine proofs of claim and object where appropriate. This conduct is distinguishable from FDCPA violations in civil suits iniated by the debt collected for known-to-be stale debts. Unlike a consumer who might pay a stale debt to avoid the costs and embarrassment of a lawsuit, a consumer who has filed a Chapter 13 Bankruptcy petition initiated that petition and has the available knowledge of a trustee. As the Bankruptcy Code balances the debtor’s protections and obligations, there are more built in protections for the consumer in bankruptcy.

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