POC for Time-Barred Debt May Violate FDCPA

The Bankruptcy Court for the Northern District of Illinois added to its body of law finding that a debt collector may violate the FDCPA by filing a proof of claim for a time-barred debt. Davenport v. Calvary Investments (In re Davenport), No. 14-30261, Adv. Pro. 15-559 (Bankr. N.D. Ill. Dec. 14, 2015).

Warnetta Davenport filed an adversary complaint objecting to Calvary Investments’ proof of claim and alleging that Calvary violated the Fair Debt Collections Practices Act (“FDCPA”) by filing proofs of claim to collect debts that were barred by the statute of limitations. Ms. Davenport also alleged that the proof of claim constituted a “fraud on the court.” Cavalry moved to dismiss the complaint.

Calvary is a debt buyer whose proof of claim was based on a credit card debt that had been charged off twelve years before Ms. Davenport filed for chapter 13 bankruptcy. There was no dispute that Illinois’ five year statute of limitations applied to the debt. Ms. Davenport argued that by filing a claim for the time-barred debt Calvary misrepresented the legal status of the debt in violation of section 1692e of the FDCPA, which prohibits debt collectors from using false, deceptive, or misleading representations to collect a debt, including false representations about the amount or legal status of a debt, and section 1692f which prohibits the use of unfair or unconscionable means to collect or attempt to collect a debt.

The court rejected Cavalry’s argument that the FDCPA is in direct conflict with the Bankruptcy Code finding that argument had no traction under the reasoning in Edwards v. LVNV Funding (In re Edwards), 539 B.R. 360 (Bankr. N.D. Ill. 2015) (finding that Seventh Circuit has explicitly found that FDCPA is not in conflict with the Bankruptcy Code. Randolph v. IMBS, Inc., 368 F.3d 726, 733 (7th Cir. 2004)).

Calvary next argued that Ms. Davenport was estopped from challenging the enforceability of the proof of claim because she failed to object to the claim before her plan was confirmed. The court found that the case relied on by Calvary, Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000), had been limited to instances in which the objection came after the bankruptcy case was closed. Where the bankruptcy case is still pending, the later case of In re Hovis, 356 F.3d 820 (7th Cir. 2004) teaches that “issue preclusion has no role within a unitary, ongoing proceeding.” There is no provision within the Bankruptcy Code or Rules requiring a debtor to object to a claim prior to confirmation. Nor does a plan provision to pay all “valid” claims create a concession that any particular claim qualifies as “valid.”

As to count II in the complaint that the proof of claim constituted a fraud on the court, the court, citing Edwards, granted Calvary’s motion to dismiss. In Edwards, the court found no basis for sanctioning a creditor for filing a POC.

Davenport Bankr ND Ill opinion