Consumer Bankruptcy Journal Fall 2015 - Page 12

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