Consumer Bankruptcy Journal Fall 2015 - Page 13

DEBT COLLECTORS debt collectors filing stale claims in a bankruptcy case also violate the FDCPA.6 After Crawford, many courts have chimed in on whether debt collectors violate the FDCPA by filing a stale claim in a bankruptcy. Courts have reached different conclusions, and the issue is now on appeal in multiple circuits.7 It has been written about numerous times, including a recent ABI Journal article by our colleagues, Alane A. Becket and William A. McNeal.8 The cases disagreeing with Crawford commonly find either that (1) an FDCPA violation is precluded by the Bankruptcy Code’s claims process, or (2) filing a stale claim is not deceptive, misleading or unfair to the least sophisticated 6 Crawford, 758 F.3d at 1261; see also In re Edwards, -- B.R. --, 2015 WL 5830823, at *4-5 (Bankr. N.D. Ill. Oct. 6, 2015) (finding strong similarities between collection lawsuits outside of bankruptcy and proofs of claim in a bankruptcy case). 7 See, e.g., Owens v. LVNV Funding, LLC, 2015 WL 1826005 (S.D. Ind. Apr. 21, 2015), appeal docketed, No. 15–2044 (7th Cir. May 13, 2015); Torres v. Asset Acceptance, LLC, ––– F.Supp.3d ––––, 2015 WL 1529297 (E.D. Pa. 2015), appeal docketed, No. 15–2132 (3d Cir. May 13, 2015). 8 Alane A. Becket and William A. McNeal, A Claimant’s Dilemma: The Statute of Limitations and Proofs of Claim, ABI Journal, Vol. XXXIV, No. 4, pp. 50-51 and 104 (April 2015). See also Kailey Grant, Katherine Yonover and Scott Zimmerman, Cracking the Crawford Code, ABI Journal, Vol. XXXIV, No. 9, pp. 34-35 and 84 (September 2015). debtor and therefore does not violate the FDCPA. Contrary to the holding of some courts preclusion of FDCPA claims is not supported by the text of the Bankruptcy Code or an irreconcilable conflict between the two statutes. Instead the viability of FDCPA claims protects debtors and maintains the integrity of the bankruptcy claims process. Other bankruptcy courts hold that the least sophisticated consumer standard does not apply in the bankruptcy context because debtors are protected by the safeguards embedded within the Bankruptcy Code and Rules.9 These “safeguards,” however, do not exist in the daily trenches of bankruptcy practice, and they should not be used to shield debt collectors from liability. THE FDCPA IS CRUCIAL IN MAINTAINING THE INTEGRITY OF THE BANKRUPTCY CLAIMS PROCESS “‘[W]hen two statutes are capable of coexistence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.’”10 The standard for establishing preclusion requires clear text or irreconcilable conflict between two statutes. There is no direct textual conflict between the Bankruptcy Code and the FDCPA 9 See In re LaGrone, 525 B.R. 419, 427 (Bankr. N.D. Ill. 2015); Birtchman v. LVNV Funding, LLC, No. 1:14-CV-00713-JMS, 2015 WL 1825970, at *7-8 (S.D. Ind. Apr. 22, 2015); In re Perkins, 533 B.R. 242, 261 (Bankr. W.D. Mich. 2015). 10 J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U.S. 124, 143-44 (2001); Morton v. Mancari, 417 U.S. 535, 550 (1974). National Association of Consumer Bankruptcy Attorneys Winter 2015 on this issue. Further, there is no implied preclusion because there is no irreconcilable conflict between the two statutes.11 While the Bankruptcy Code contains a process for filing proofs of claim, nothing in that process compels a debt collector to file a claim for a legally unenforceable debt.12 That is, the Bankruptcy Code’s permissive language does not authorize conduct that it is otherwise prohibited by the FDCPA. Furthermore, the fact that debt collectors are singled out for additional regulation does not create a conflict; it reflects Congress’s considered judgment that this particular group imposes heightened risks of public harm, and its behavior must be restricted in ways that do not affect ordinary creditors. The bankruptcy claims process is designed to run fairly and efficiently. It sets presumptions in favor of validity in order to expedite claims resolution. It is antithetical to the efficient operation of the system to allow debt collectors to engage 11 See In re Feggins, -- B.R. --, 2015 WL 5011224 (Bankr. M.D. Ala. Aug. 25, 2015). 12 It is a violation of the FDCPA for debt collectors to represent that a debt is legally enforceable in a bankruptcy. A claim on a time barred debt is automatically “allowed” upon filing under 11 U.S.C. § 502(a) and per se legally enforceable against a debtor’s estate. The filing of a time barred proof of claim is therefore legal enforcement of a legally unenforceable claim. It is certainly not an invitation to repay the tim e barred debt as a moral obligation. See McMahon, 744 F.3d at 1020. CONSUMER BANKRUPTCY JOURNAL 13