11TH CIRCUIT COURT OF APPEALS
PUTS DEBT BUYERS AT RISK
Crawford v. LVNV Funding, LLC
By David Levin
Partner, Consumer Rights Litigation
www.UpRightLwaw.com
T
h e
11th
Circuit
Court of
Appeals
recently
decided
a
case
w h i c h
puts debt
buyers at
risk when
filing proofs of claim on older accounts.
In Crawford v. LVNV Funding, LLC, ___
F.3d ___, 2014 WL 3361226 (11th Cir.
2014), LVNV, one of the largest debt
buyers in the country, filed a proof of
claim in a Chapter 13 bankruptcy case
for a $2,037.99 balance. Based on
the date of the last transaction on the
account and the three-year Alabama
statute of limitations, the debt became
unenforceable in October of 2004.
LVNV’s proof of claim was filed over
four years later. The court noted that
“[a] deluge has swept through U.S.
bankruptcy courts of late. Consumer
debt buyers — armed with hundreds
of delinquent accounts purchased from
creditors — are filing proofs of claim
on debts deemed unenforceable under
state statutes of limitations.” Id. at p. 2.
The debtor filed an adversary
proceeding against LVNV, alleging
violations of the Fair Debt Collection
Practices Act (FDCPA), which was
dismissed by the bankruptcy court. The
dismissal was affirmed by the district
court. In reversing the district court,
the 11th Circuit sent a clear message
to large volume debt buyers like LVNV.
In bankruptcy, the limitations period
provides a bright line for debt collectors
and consumer debtors, signifying a
time when the debtor’s right to be free
of stale claims comes to prevail over
a creditor’s right to legally enforce the
debt. A Chapter 13 debtor’s memory
of a stale debt may have faded and
personal records documenting the debt
may have vanished, making it difficult
for a consumer debtor to defend
against the time-barred claim.
Similar to the filing of a stale lawsuit,
a debt collector’s filing of a time-barred
proof of claim creates the misleading
impression to the debtor that the debt
collector can legally enforce the debt.
The “least sophisticated” Chapter 13
debtor may be unaware that a claim
is time barred and unenforceable and
thus fail to object to such a claim. Given
the Bankruptcy Code’s automatic
allowance provision, the otherwise
unenforceable time-barred debt will
be paid from the debtor’s future wages
as part of his Chapter 13 repayment
plan. Such a distribution of funds
to debt collectors with time-barred
claims then necessarily reduces the
payments to other legitimate creditors
with enforceable claims. Furthermore,
filing objections to time-barred claims
consumes energy and resources in a
debtor’s bankruptcy case, just as filing
a limitations defense does in state
court. For all of these reasons, under
National Association of Consumer Bankruptcy Attorneys
Spring 2015
the “least-sophisticated consumer
standard” in our binding precedent,
LVNV’s filing of a time-barred proof of
claim against Crawford in bankruptcy
was
“unfair,”
“unconscionable,”
“deceptive,” and “misleading” within the
broad scope of [15 U.S.C.] §1692e and
§1692f.”
Id. at p. 11-12.
The court disagreed with LVNV’s
suspicious argument that filing a proof
of claim in a Chapter 13 bankruptcy
case was not an attempt to collect a
debt covered by the FDCPA.
[I]n interpreting “to collect a debt” as
used in § 1692(a)(6), the Supreme
Court has turned to the dictionary’s
definition: “To collect a debt or claim is
to obtain payment or liquidation of it,
either by personal solicitation or legal
proceedings.” Heintz v. Jenkins, 514
U.S. 291, 294, 115 S. Ct. 1489, 1491
(1995) (quoting Black’s Law Dictionary
263 (6th ed. 1990)).
… LVNV’s filing of the proof of
claim fell well within the ambit of a
“representation” or “means” used
in “connection with the collection of
any debt.” It was an effort “to obtain
payment” of Crawford’s debt “by legal
proceeding.” In fact, payments to LVNV
were made from Crawford’s wages
as a result of LVNV’s claim. And, it
was Crawford – not the trustee – who
ultimately objected to defendants’ claim
as time-barred.
CONSUMER BANKRUPTCY JOURNAL
37