U.S. Supreme Court Holds FDCPA Not Violated By Proof of Claim on Time-Barred Debt.

In the case of Midland Funding, LLC v. Johnson, the Supreme Court of the United States determined that the Fair Debt Collection Practices Act (the “FDCPA”) is not violated when a debt collector files a proof of claim (“POC”) in a Chapter 13 bankruptcy for a debt that is subject to an expired limitations period.

In the case, the Debtor objected to the claim of Midland Funding and the claim was stricken by the bankruptcy court.  The Debtor initiated a lawsuit against Midland, claiming that the POC was time-barred by the applicable statute of limitations and that filing such a claim was false, deceptive, misleading, and unfair – falling under the umbrella of the FDCPA.

The Supreme Court of the United States has now made the determination that 1) the filing of such a proof of claim is not a false, deceptive, misleading, unfair or unconscionable debt collection practice; 2) claims under the Bankruptcy Code do not need to be “enforceable” in a civil lawsuit; and 3) this does not preclude application of the FDCPA to bankruptcy litigation.

The term “claim” in the Bankruptcy Code is broadly defined as a “right to payment.” The word “enforceable” is not a part of the Bankruptcy Code’s definition of the claim.  A Chapter 13 petition is one initiated by the consumer (the Debtor), and the claims resolution process is distinguishable from a collection lawsuit. As such, there are procedures set in place to guide the evaluation and the acceptance (or disallowance) of claims against the Debtor.  Ultimately the FDCPA and the Bankruptcy Code have different purposes and different objectives – the FDCPA helps protect consumers from unfair collection practices, while the Code helps establish a balance between Debtor protection and Debtor obligations in connection to debts.

The attorneys of ALAW remain well attuned to our ever-changing legal landscape and are prepared to provide you with unparalleled representation every step of the way.

For more information on this legal update or any other legislative matters, please contact:
Jeffrey S. Fraser
[email protected]