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). [Read more…] about POC for Time-Barred Debt May Violate FDCPA
POC for Stale Debt May Be FDCPA Violation
Filing a proof of claim for a time-barred debt may constitute an FDCPA violation. Edwards v. LVNV Funding (In re Edwards), No. 14-13263 (Bankr. N.D. Ill. Oct. 6, 2015). [Read more…] about POC for Stale Debt May Be FDCPA Violation
Eighth Circuit BAP Gets it Wrong in FDCPA Case
Filing an accurate proof of claim on a stale debt does not violate the FDCPA. Gatewood v. CP Medical, LLC, No. 15-6008 (B.A.P. 8th Cir. July 10, 2015). Mr. and Mrs. Gatewood filed for Chapter 13 bankruptcy and CP Medical, a medical collection agency, filed a proof of claim on a debt that was time-barred under Arkansas law. After the Gatewoods converted to Chapter 7, they filed an adversary complaint against CP Medical for seeking payment on a stale debt “as a means of debt collection that is either false, misleading, deceptive, unfair, or unconscionable” in violation of the FDCPA.
The bankruptcy court, relying on Eighth Circuit precedent, found that an attempt to collect on a stale debt is not a violation of the FDCPA. It further found that the Bankruptcy Code provides the only relief available to a debtor in cases such as these. The BAP affirmed.
On appeal, the BAP found that CP Medical’s filing of a proof of claim constituted an act to collect on a debt under the FDCPA. CP Medical argued that unless there is a threat of litigation in connection with its debt collection conduct, there can be no violation of the FDCPA. Citing Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1091 (8th Cir. 2007), the BAP found that filing a proof of claim in a bankruptcy case is an act of litigation.
The panel turned to whether filing a proof of claim on a stale debt constitutes “false, misleading, deceptive, unfair, or unconscionable” conduct. The court noted that the Eleventh Circuit in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), applied a “least sophisticated debtor” standard and found that a proof of claim for a stale debt was an FDCPA violation. However, other courts have found that the protection afforded to the unsophisticated debtor under the FDCPA is not necessary when the debtor is in bankruptcy. In the parallel universe some courts inhabit, all debtors have lawyers and bankruptcy trustees and judges are ever alert to stale claims and avid to protect the rights of the debtors even where there is little benefit to the estate in doing so.
The court quoted Torres v. Asset Acceptance, LLC, ___ F. Supp. 3d ___, 2015 WL 1529297 (E.D. Pa. Apr. 7, 2015) (appeal filed May 13, 2015): “Under these circumstances, the Court will not insert judicially created remedies into Congress’s carefully calibrated bankruptcy scheme, thus tilting the balance of rights and obligations between debtors and creditors.” Id. at *7. Incredibly, this quoted language suggests that permitting debtors to enforce their rights under the FDCPA when they already have the protection of the bankruptcy court, would give them an unfair advantage over creditors trying to slip one by the trustee and court.
The BAP fell short of finding that the FDCPA is wholly precluded by the Bankruptcy Code. It limited its holding to the facts of the case before it, in which it found “[t]here is nothing improper about attempting to collect on a time-barred debt since the debt remains.”
Must Read – Why Filing Stale Claims in Bankruptcy Violates the FDCPA
On Friday, Debtor in Johnson v. Midland Funding filed her opening brief in the Eleventh Circuit. It is well worth the read. In summary:
1. There is no textual support for the conclusion that the Bankruptcy Code precludes valid FDCPA claims.
2. When it comes to proofs of claim, debt collectors do not have a “right” to file a claim on a time-barred debt. Even though the debt is not extinguished by the statute of limitations, the expiration of the SOL renders the obligation legally unenforceable. As such, it is not a “claim” for purposes of the Code.
3. The bankruptcy process is designed to run fairly and efficiently; there is no room for a pointless exercise of lodging invalid claims that require trustees or debtors to object. Debt collectors tax scarce judicial and party resources by filing such frivolous claims and diverting funds from honest creditors. The aggregate cost to the system from debt collectors filing stale claims is staggering.
4. Debt collectors can easily comply with both the Code and the FDCPA by refraining from filing stale claims. Debt collectors are not compelled to take any action under the Code that violates the FDCPA.
NABCA Weighs in on Intersection between Bankruptcy Code and FDCPA
NCBRC filed an amicus brief on behalf of the NACBA membership in the case of Garfield v. Ocwen Loan Servicing, No. 15-527 (2d Cir. filed June 13, 2015). The brief seeks a reversal of a district court finding that the Bankruptcy Code precludes the application of the FDCPA in any case involving a discharged debt. Overlapping federal statutory schemes are presumed to be non-preclusive unless the plain text of one or the other explicitly creates preclusion or where there is an irreconcilable conflict between the two. Morton v. Mancari, 417 U.S. 535, 550 (1974). [Read more…] about NABCA Weighs in on Intersection between Bankruptcy Code and FDCPA
One of Three Illinois Cases Gets it Right in FDCPA Case
Three cases out of the Northern District of Illinois address the issue of whether filing a proof of claim in Chapter 13 bankruptcy for a stale debt can be the basis for an FDCPA claim. In Murff v. LVNV Funding (In re Murff), No. 13-44431, Adv. Proc. 14-790 (Bankr. N.D. Ill. June 15, 2015) and LaGrone v. LVNV Funding (In re LaGrone), 525 B.R. 419 (Bankr. N.D. Ill. Jan. 21, 2015), the courts essentially found the element of deception for a FDCPA violation is not present in the context of a bankruptcy case. In Avalos v. LVNV Funding (In re Avalos), No. 13-40865, Adv. Proc. 15-91(Bankr. N.D. Ill. June 12, 2015), Judge Schmetterer found that the determination of whether debt-collector conduct is deceptive is an issue of fact to be addressed on a case-by-case basis. [Read more…] about One of Three Illinois Cases Gets it Right in FDCPA Case
Garfield v. Ocwen Loan Servicing, No. 15-527 (2d Cir.)
Type: Amicus
Date: June 13, 2015
Description: Whether the Bankruptcy Code precludes valid claims under the FDCPA.
Result: Judgment reversed, January 4, 2016. Debtor won.
Cert. Denied in LVNV v. Crawford
The Supreme Court has declined to take up the issue of whether filing a stale proof of claim in a bankruptcy case violates the FDCPA. Previously, the Eleventh Circuit found that a proof of claim to collect a stale debt in chapter 13 violates the Fair Debt Collection Practices Act. In Crawford, however, the Eleventh Circuit side-stepped the issue of whether an irreconcilable conflicts exists between the Bankruptcy Code and the FDCPA, such that creditor’s conduct in bankruptcy would not be actionable under the FDCPA.
FDCPA and Bankruptcy Law Not Necessarily Mutually Exclusive
The Third Circuit found that a debtor may maintain an action under the FDCPA even though the conduct giving rise to the claim is also addressed by bankruptcy rules. Simon v. FIA Card Services (In re Simon), No. 12-3393 (3d Cir. Oct. 7, 2013). [Read more…] about FDCPA and Bankruptcy Law Not Necessarily Mutually Exclusive
New Jersey Supreme Court Finds Post-Foreclosure-Judgment Agreement Subject to CFA
In Gonzalez v. Wilshire Credit Corp., (A-99-09) (065564) (N.J. Sup.Ct., August 29, 2011), the New Jersey Supreme Court found that the state Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195, applies to a post-foreclosure-judgment agreement.In that case, the debtor, an uneducated, disabled woman, who neither spoke nor read English, entered into two new agreements with the servicer of the mortgage secured by her residence. The second agreement specified arrearages greater than the amount found by the trial court, and “packed” the loan with force placed insurance. The court rejected the lender’s characterization of the agreement as a settlement of the foreclosure action and instead determined that the post-judgment agreement was an extension of credit in and of itself and, therefore, constituted a new loan which was subject to the CFA’s prohibition against unconscionable practices. The court noted that the realities of the mortgage industry, in which the original mortgagee rarely continues to hold and service the loan, did not insulate the servicer from the consequences of its fraudulent lending practices. In reaching its conclusion the court cited the article co-authored by NCBRC’s Tara Twomey relating to the role of a servicing agent in the mortgage industry. Adam J. Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1, 15, 23, 25-28 (2011).
Opinion