DEBT COLLECTORS
in the pointless exercise of filing
proofs of claim for debt obligations
that are legally unenforceable
with the expectation that debtor’s
counsel, the chapter 13 trustee,
or the USTP will spend valuable
time and resources to object to
that claim.
Congress intended
the FDCPA to fill the gaps of other
laws, and it does exactly that:
it prevents debt collectors from
abusing the bankruptcy system by
filing knowingly invalid claims—all
in the hope of collecting when the
process fails, not when it performs
as intended.
CASES
DISTINGUISHING
CRAWFORD RELY ON ILLUSORY
SAFEGUARDS
Those courts that hold filing stale
claims is not misleading, deceptive
or unfair generally identify three
illusory safeguards that protect
debtors: 1) the Bankruptcy Rules
that require disclosure of certain
information related to the age of
the debt; 2) the assumption that
bankruptcy debtors are usually
represented by an attorney; 3)
the assumption that the chapter
13 trustee or the United States
Trustee’s Program will object to
stale claims.13
FALSE SAFEGUARD # 1: Debt
collectors must disclose information
in their proof of claim that identifies
whether the statute of limitations
has expired. Therefore it is much
easier to discover and object to
stale claims.
While debt collectors are supposed
to disclose information that would
13
See LaGrone, 525 B.R. at 427;
Birtchman, at *7-8; Perkins, 533 B.R. at
261.
14
CONSUMER BANKRUPTCY JOURNAL
identify a stale claim, there is
no enforcement mechanism or
motivating penalty that applies
when that information is omitted.
Bankruptcy Rule 3001(c)(3), in
relevant part, requires a debt
collector to list the date of the last
transaction, the date of the last
payment, and the date the account
was charged to profit or loss. The
very purpose of the rule was to
assist parties in identifying stale
claims.14 This rule, however, is not
easily enforceable because failure
to include this information is not an
independent basis to object to a
proof of claim.15 Instead objections
must fall into the categories listed in
section 502(b). If the case proceeds
to a final determination, the court
may impose a penalty for failing to
include information.16
Debtors have limited tools to use
in obtaining omitted information
in a deficient claim, and the
cost of employing such tools is
extraordinary and often prohibitively
expensive. Depending on the
jurisdiction and the inclination of
the bankruptcy judge, the debtor
may: seek a court order for a 2004
14 See LaGrone, 525 B.R. at
427(“As explained in the Advisory
Committee Notes to the 2012
Amendments, these required
disclosures were designed to “provide a
basis for assessing the timeliness of the
claim.”)(J. Wedoff).
15 In re Reynolds, 470 B.R. 138,
145 (Bankr.D.Colo.2012) (“because
claim disallowance falls outside of
the remedies enumerated under Rule
3001(c)(2)(D), the rule precludes such
a remedy.”); see also In re Critten, 528
B.R. 835, 840-41 (Bankr. M.D. Ala.
2015)(collecting cases).
16 See 3001(c)(2).
Winter 2015
exam of the debt collector who filed
the deficient proof of claim; file an
adversary complaint to obtain an
injunction or other equitable relief
against the debt collector filing the
proof of claim;17 initiate the process
for sanctions under Rule 9011 or
refer the matter to the United States
Trustee’s office for the filing of a
false pleading; or ask the court to
use its powers under section 105 to
compel the debt collector to abide
by Bankruptcy Rule 3001.
All of these options rely on the
Debtor’s records and memory
to establish a good faith basis
for filing the motion or adversary
proceeding.
Yet courts have
expressed
significant
concern
over just such reliance outside the
bankruptcy context. All of these
actions require significant time and
expense. In bankruptcy practice,
these tools are scarcely used when
claims are deficient because of
the steep cost of obtaining debt
collector compliance. The bottom
line is that a debt collector who
fails to include or inserts inaccurate
information related to the statute of
limitations is effectively insulated
from an objection to the claim. This
insulation prevents Bankruptcy
Rule 3001(c)(3) from acting as a full
safeguard against abuse.
FALSE SAFEGUARD #2: The job
of the Debtor’s attorney is to object
to claims for time-barred debts.
The economics of a standard
Debtor’s Chapter 13 bankruptcy
case
often
diminishes
the
importance of objecting to claims
if the plan proposes to pay back
17 See Fed. R. Bankr. P. 7001(7),
7001(9).
National Association of Consumer Bankruptcy Attorneys