Consumer Bankruptcy Journal Fall 2015 - Page 15

DEBT COLLECTORS less than 100% of all claims. In most chapter 13 cases a Debtor does not propose to pay back his creditors in full. In those cases, the claims that are filed are paid pro-rata with other claims. This means that the parties who suffer from the allowance of time-barred claims are other creditors who have their pro-rata claims diluted and are therefore paid less.18 Even in cases for which 100% of claims are going to be paid, it remains timeconsuming and expensive to object to claims, particularly when the proof of claim is deficient. Debtors cannot afford the cost of litigating small unsecured claims, and most debtors’ attorneys do not have the time or resources to litigate the issue without compensation. FALSE SAFEGUARD #3: The Chapter 13 Trustee or the United States Trustee program will object to the claim. The Bankruptcy Code provides that a trustee can object to a claim “if a purpose will be served.”19 Most trustees will follow the same rationale as debtors’ counsel that those harmed are only other unsecured creditors. In practice trustees rarely, if ever, object to debt collectors’ stale claims. Nor do trustees expend resources to ensure compliance with Rule 18 See 15 U.S.C. § 1692(e) (stating that the FDCPA’s purpose includes “eliminat[ing] abusive debt collection practices by debt collectors” and “insur[ing] that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged”). 19 See 11 U.S.C. § 1302(b)(1) (incorporating 11 U.S.C. § 704(a)(5)). 3001(c)(3). 20 The United States Trustee’s Program is the only national enforcer of the bankruptcy rules,21 but it only investigates a tiny fraction of filed claims and initiates even fewer enforcement actions. In July 2014, Clifford J. White III, Executive Director for the United States Trustee Program, stated that in the previous 10-month period, the USTP reviewed more than 22,000 claims and found great variation in compliance among filers. 22 In almost that same period (between June 30, 2013 and June 30, 2014) there was a total of 321,278 chapter 13 bankruptcy cases filed.23 If one 20 See In re Edwards, -- B.R. --, 2015 WL 5830823, at *5 (Bankr. N.D. Ill. Oct. 6, 2015). 21 Statement of Clifford J. White III, Director of the Executive Office for United States Trustees before the Committee on the Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law, U.S. House of Representatives at a Hearing Entitled “Ongoing Oversight: Monitoring the Activities of the U.S. Trustee Program,” May 19, 2015, p.6, available at file/440401/download. 22 Remarks of Clifford J. White III, Director of the Executive Office for United States Trustees before the 49th Annual National Association of Chapter Thirteen Trustees Seminar on July 17, 2014, p.3, available at http:// ust/legacy/2014/07/17/NACTT_49th_ Annual_Sem_07172014.pdf. 23 See Table F-2 – Bankruptcy Filings (June 30, 2014), available at table/f-2/statistical-tables-federaljudiciary/2014/06/30. National Association of Consumer Bankruptcy Attorneys Winter 2015 takes a conservative estimate of only five unsecured claims filed in each chapter 13 case, then approximately 1,606,390 claims were filed in chapter 13 cases in that period. Therefore, conservatively the USTP reviewed only about 1.4% of claims for compliance with the rules, found levels of compliance varied even among that small sample, and did not take any public enforcement action against debt collectors. None of these “safeguards” provide debtors any actual protection in the vast majority of bankruptcy cases. CONCLUSION The bankruptcy safeguards relied upon to distinguish Crawford and deny debtors the protections of the FDCPA are unfounded. Arguments that the Bankruptcy Code precludes application of the FDCPA to debt collectors filing stale claims in bankruptcy are similarly without support in the text or case law. Rather than conflicting with the Code, the proper application of the FDCPA to debt collectors filing stale claims in bankruptcy cases protects debtors and preserves the integrity of the bankruptcy claims process. CONSUMER BANKRUPTCY JOURNAL 15