Debt Collectors Should Not
get a Free Pass in bankruptcy
By Tara Twomey, Project Director for the National Consumer B
ankruptcy Rights
Center & NACBA Board of Directors and Jim Haller, Law Offices of Mueller and
Haller, & NACBA Board of Directors
T
his article supports the
proposition that the Fair
Debt Collection Practices Act
(FDCPA)1 applies to proofs of claim
filed by debt collectors for debt
obligations beyond the applicable
statute of limitations. Dissenting
opinions
mistakenly
preclude
liability based upon unrealistic
“safeguards” against debt collector
abuse or a non-existent conflict
between the Bankruptcy Code and
the FDCPA. Instead of conflicting
with the Code, the application of the
FDCPA in the case of “stale” claims
compliments the bankruptcy claims
process and protects the integrity
of a system that allocates Debtor’s
scarce resources between creditors
with legally enforceable claims.2
1
See 11 U.S.C. §1692 et seq.
2
Contrary to debt collectors’
assertions, a debt obligation beyond
the applicable statute of limitations
is not a legally enforceable claim for
which they have a right to payment
under the Bankruptcy Code. Pa.
Dep’t of Pub. Welfare v. Davenport,
495 U.S. 552, 559 (1990) (“[t]he
plain meaning of a ‘right to payment’
is nothing more nor less than an
12
CONSUMER BANKRUPTCY JOURNAL
BACKROUND
The concept that filing a proof of
claim based on an unenforceable
debt obligation violates the FDCPA
rose to national prominence with
the decision of the Eleventh Circuit
Court of Appeals in Crawford
v. LVNV Funding, LLC.3
The
Crawford court began its analysis
by correctly stating that debt
collectors attempting to collect stale
debt through state court actions
violate sections 1692e and 1692f
of the FDCPA.4 Such actions are
enforceable obligation”); McMahon v.
LVNV Funding, LLC, 744 F.3d 1010,
1020 (7th Cir. 2014) (time-barred
claims are not “legally enforceable”);
Huertas v. Galaxy Asset Mgmt., 641
F.3d 28, 32 (3d Cir. 2011) (the statute
of limitations “renders [the debt]
unenforceable”); see also 11 U.S.C. §
101(5)(A) (defining a claim as a “right
to payment”).
3
758 F.3d 1254 (11th Cir.
2014), cert. denied, 135 S. Ct. 1844
(2015).
4
Id. at 1259 (collecting case s);
see also 15 U.S.C. § 1692e (prohibiting
false, misleading, or deceptive
representations); 15 U.S.C. § 1692f
Winter 2015
considered misleading, deceptive
or unfair because unsophisticated
consumers generally are unaware
of a statute of limitations defense
and do not have the memory or
records to raise the defense.5
Further, by filing a state court
lawsuit, a debt collector falsely
represents that the debt obligation
is legally enforceable. By analogy,
the Crawford court concluded that
(prohibiting unfair or unconscionable
conduct).
5
See Phillips v. Asset
Acceptance, LLC, 736 F.3d 1076, 1079
(7th Cir. 2013). This rationale is
supported by the underlying reason
for statutes of limitations in general:
they “represent a pervasive legislative
judgment that it is unjust to fail to
put the adversary on notice to defend
within a specified period of time.”
United States v. Kubrick, 444 U.S. 111,
117 (1979). Furthermore, “the right
to be free of stale claims in time comes
to prevail over the right to prosecute
them.” Id. at 117 (citations omitted).
While a debtor may feel she has a
moral obligation to pay the debt, she is
no longer compelled to pay under the
law.
National Association of Consumer Bankruptcy Attorneys