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If a Creditor files a Claim against a Time Barred Debt, Is there a Violation of the Fair Debt Collection Practices Act?

Yes – According to at least one US Circuit Court in a recent opinion.

As reported by Robin Miller of CBAR, in an important decision and a rare victory for consumers, the 11th Circuit Court of Appeals has held that a debt collector’s filing a proof of claim for a time-barred debt violates the federal Fair Debt Collection Practice Act. Crawford v. LVNV Funding, LLC, (11th Cir., July 10, 2014) (case no. 13-12389). The Crawford Court reversed the decisionof the lower court in Crawford v. LVNV Funding, LLC, 2013 WL 1947616 (M.D. Ala., May 9, 2013).

The Crawford court reasoned that courts have uniformly held that a debt collector’s threatening to sue on a time-barred debt, or actually filing suit to recover that debt, violates 15 U.S.C. § 1692e (prohibiting the use of “any false, deceptive, or misleading representation or means” by a debt collector) and § 1692f (prohibiting the use of any “unfair or unconscionable means” by a debt collector).

The Crawford court applied the same rule to Proofs of Claim filed in a Chapter 13 bankruptcy case, maintaining:

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.

The Crawford holding is contrarty to decisions in both the 2nd and 9th Circuits. The Simmons Court in the 2nd Circuit held that filing a proof of claim in bankruptcy court, even one that is somehow invalid, does not constitute the sort of abusive debt collection practice proscribed by the Fair Debt Collection Practice Act. The Walls Court in the 9th Circuit maintained that a claim under the Fair Debt Collection Practice Act for conduct violating the discharge injunction was precluded by the existence of remedies under the Bankruptcy Code. The Walls ruling is a decision understood to generally prohibit Fair Debt Collection Practice Act claims for bankruptcy-related conduct.