Can an out-of-state creditor come into a consumer’s bankruptcy case and file a proof of claim for a stale debt that has gone over the maximum time limit for the statute of limitations? A federal district court judge answered yes to that question. However, on appeal, the Eleventh Circuit Court of Appeals reversed and held 3-0 that filing of an out-of-state stale claim in bankruptcy court is a violation of the Fair Debt Collection Practices Act. The ruling is likely to be accepted in Arkansas bankruptcy courts as legal precedent.
The court held that when a creditor is also a “debt collector” under the FDCPA, the creditor can be liable to the same degree as a debt collector. It is illegal for the creditor to create the false impression to the debtor that the creditor can still enforce collection on the debt, despite knowing that the statute of limitations has expired. The debtor can therefore file an FDCPA claim against a creditor in a Chapter 13 bankruptcy under these facts.
In Johnson v. Midland Funding, et.al., (11th Cir. May 24, 2016), the court held that the Bankruptcy Code and the FDCPA were not irreconcilable just because each law served different purposes and people. The court explained that the FDCPA stands astride the Bankruptcy Code and provides consumers with an extra layer of protection. This endows the consumer with a separate action in the bankruptcy to enforce remedies against the violation.
This is reportedly the first decision by an appellate federal court on the issue. The rule only kicks in when the creditor qualifies also as a debt collector and acts in the bankruptcy like a debt collector. The extra layer of protection given to the debtor in these situations is a victory for debtors’ rights in a bankruptcy case. The Bankruptcy Code does not shield the debt collectors from the obligations that they face when filing a proof of claim for a debt claimed due in a bankruptcy case. The holding of the case is likely to be accepted in Arkansas filings as well as elsewhere.
Source: acainternational.com, “Eleventh Circuit Reaffirms Decision that Filing Stale Claims in Bankruptcy Violates FDCPA”, May 25, 2016