The U.S. Court of Appeals for the Eighth Circuit recently held that “[a]n accurate and complete proof of claim on a time-barred debt is not false, deceptive, misleading, unfair, or unconscionable under the FDCPA.”
In arriving at this holding, the Court declined to follow the Eleventh Circuit’s rulings in Crawford and Johnson.
A copy of the opinion is available at: Link to Opinion.
As you may recall, in Crawford v. LVNV Funding LLC, the Eleventh Circuit held that a debt collector violates the FDCPA when it files a proof of claim in a bankruptcy case on a debt that it knows to be time-barred.
More recently, in Johnson v. Midland Funding LLC, the Eleventh Circuit held that there is no irreconcilable conflict between the FDCPA and the Bankruptcy Code.
The case decided by the Eighth Circuit began in a fashion similar to the Crawford and Johnson cases. The debtor defaulted on a consumer debt. Roughly nine years later, the debtor filed a Chapter 13 petition in bankruptcy court. The agent for the owner of the debt filed a proof of claim. The debtor objected to the proof of claim on the grounds that the debt was time-barred under Missouri law. The bankruptcy court disallowed the claim and the debtor subsequently sued the creditor’s agent, alleging that filing a proof of claim on a time-barred debt violates the FDCPA. The district court dismissed the case for failure to state a claim upon which relief can be granted.
In affirming the district court’s dismissal, the Eighth Circuit took issue with the Eleventh Circuit’s reasoning in Crawford. In Crawford the Eleventh Circuit found that the concerns underlying the rule against litigating, or threatening to litigate, time-barred debts apply equally to debt collectors filing proofs of claim on stale debts. But the Eighth Circuit stated that Crawford “ignores the differences between a bankruptcy claim and actual or threatened litigation.”
The court listed some examples of how bankruptcy and collection litigation are different with regard to the protections provided to debtors. For instance, in bankruptcy debtors have the assistance of trustees who have a statutory obligation to object to unenforceable claims. Also, objecting to a time-barred proof of claim in bankruptcy is not as burdensome as defending a collection lawsuit filed on an old debt. And a proof of claim “does not expand the pool of available funds in bankruptcy,” thus debtors in bankruptcy do not have as much at stake as a defendant in a collection lawsuit.
The Eighth Circuit found that because these bankruptcy protections are sufficient to satisfy the FDCPA’s concerns, there is no reason to further protect debtors who enjoy those protections or to supplement the remedies already provided by bankruptcy itself.