Debt-Buyers Face Many Land Mines, Panelists Say

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By Deborah Swann

Sept. 30 — Prosecuting violations of the Fair Debt Collection Practices Act in bankruptcy provides financial incentives for debtors’ attorneys to review and object to stale Chapter 13 claims, according to a Sept. 29 panel discussion at the National Conference of Bankruptcy Judges, Miami, Fla. The panelists focused on how life can be unfair to debt buyers, and pondered whether it is an unfair debt-collection practice not to disclose a time-barred debt as unenforceable.

Debtor Beware!

Debt-buyers, companies that are in the business of buying consumer debts and trying to collect on them, have a financial incentive to file stale claims in Chapter 13 bankruptcies. “Absent an objection from either the Chapter 13 debtor or the trustee, the time-barred claim is automatically allowed against the debtor pursuant to 11 U.S.C. § 502(a)-(b) and Bankruptcy Rule 3001(f),” according to the decision in Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1259 (11th Cir. 2014), cert. denied, 135 S. Ct. 1844, 191 L. Ed. 2d 724 (2015)(26 BBLR 1001, 7/24/14). “As a result, the debtor must then pay the debt from his future wages as part of the Chapter 13 repayment plan, notwithstanding that the debt is time-barred and unenforceable in court.”

The Fair Debt Collection Practices Act imposes civil liability on debt collectors for “false, deceptive, or unfair” debt-collection practices. Consumer debtors have a private right of action to enforce the Act’s provisions, and can receive actual and statutory damages as well as reasonable attorney’s fees and costs against violating debt collectors. Crawfordheld that the filing of a proof of claim on a stale debt in a bankruptcy proceeding is a violation of the FDCPA.

Debt-Buyers Beware!

Alane A. Becket of Becket & Lee, Malvern, Pa., and Prof. Dalie Jimenez of the University of the Connecticut School of Law, Hartford, Conn., noted that most of the consumer debt purchased is credit card debt. And until recently, with the advent of enforcement activity by the Consumer Financial Protection Bureau, the information debt buyers received from creditor banks selling the debt was minimal. What’s more, most contracts governing the relationship between debt buyers and creditor banks stated that the banks did not warrant the information provided was accurate.

Debt buyers being held liable for filing stale claims in bankruptcy when they were not provided sufficient information by the selling banks seems unfair, the panelists noted. Also, the FDCPA does not apply to all creditors (i.e., those selling banks), only the professional debt-collectors.

In Becket’s view nothing in the FDCPA prohibits the lawful collection of debts for which the statute of limitations for filing suit has run; except that Crawford makes the filing of a proof of claim on a stale debt unlawful, at least in the Eleventh Circuit. Jimenez noted that it might be unfair to have the limited resources of a Chapter 13 estate go in part to stale claims. That reduces the payments to other legitimate creditors with enforceable claims.

Debt-Buyers Are Down, but Not Out

Nick Wooten of Nick Wooten, LLC, Auburn, Ala., noted that the issue now before the courts is whether the Bankruptcy Code repeals the FDCPA by implication. The Second and the Ninth Circuits have ruled that it does, in Simmons v. Roundup Funding, LLC, 622 F.3d 93, 96 (2nd Cir. 2010); (27 BBLR 555, 4/16/15), and Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002). The Third and the Seventh Circuits have ruled to the contrary, in Simon v. FIA Card Services, N.A., 732 F.3d 259, 271 (3d Cir. 2013) (24 BBLR 970, 7/26/12), and Randolph v. IMBS, Inc., 368 F.3d 726, 732 (7th Cir. 2004).