Consumer Bankruptcy Journal Spring 2015 - Page 37

11TH CIRCUIT COURT OF APPEALS PUTS DEBT BUYERS AT RISK Crawford v. LVNV Funding, LLC By David Levin Partner, Consumer Rights Litigation 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