Clash Continues Between Bankruptcy, Debt Collection Laws

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By Stephanie Cumings

Jan. 7 — Another Florida court has found that when a creditor files a claim in bankruptcy that the creditor knows is barred by the statute of limitations, it's not a violation of the Fair Debt Collection Practices Act.

The FDCPA normally protects consumers from fraudulent attempts to collect a debt, but the Bankruptcy Code explicitly allows creditors to file time-barred claims, creating a possible conflict in the federal laws.

Courts are split on whether or not it violates the FDCPA to file a stale claim in bankruptcy, especially within the Eleventh Circuit where a controversial 2014 case seems to have provided more confusion than guidance. This issue has given rise to a circuit split and could potentially reach the Supreme Court.

Fraudulent Tactics?

This case was yet another that involved a creditor filing a proof of claim in a bankruptcy when the statute of limitations to collect on the debt had already expired. The debtor in this case, Ana Castellanos, alleged it was the creditor's standard practice to file proofs of claim for debts it knew were time-barred.

Castellanos filed a complaint alleging violations of the FDCPA, including “(1) making a false representation of the legal status of a debt; (2) using a false representation and deceptive means to collect a debt; and (3) using unfair and unconscionable means to collect a debt.”

Cure for Creditor Misconduct

The Bankruptcy Code allows creditors to file stale claims like the one at issue in this case. But as the district court noted, it also “provides a remedial scheme for debtors faced with creditor misconduct.”

“Of particular relevance here, the Bankruptcy Code provides the debtor a means to object to impermissible proofs of claim, such as those that are time-barred,” the court said. What the court didn't mention, and what helps explain why time-barred claims get filed, is that under Section 502 of the Bankruptcy Code any filed claim is deemed allowed if no one objects.

FDCPA Must Yield

As several other courts have done before, in this case the district court “follow[ed] the cannon of statutory interpretation that a later statute should not be read to implicitly repeal an earlier one.”

“Under the facts presented here, the FDCPA and the Bankruptcy Code are at an irreconcilable conflict because the FDCPA prohibits filing a time-barred claim while the Bankruptcy Code permits it,” the court said. “In such cases, the FDCPA must yield to the Bankruptcy Code, which already provides protections for debtors faced with stale proofs of claim.”

Confounding Case

The court mentioned Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), a case that has confounded some lower courts. In Crawford, the court found that attempting to collect on a stale debt by filing a claim in bankruptcy could constitute an FDCPA violation, but the Eleventh Circuit expressly refused to decide whether there is any conflict between the FDCPA and the Bankruptcy Code because the creditor didn't advance that argument (26 BBLR 1001, 7/24/14). The Supreme Court refused to hear an appeal in Crawford.

As the district court in this case noted, some courts have taken Crawford to mean that FDCPA claims are allowed in these cases. Other courts have found that there is in fact an irreconcilable conflict between the FDCPA and the Bankruptcy Code, the issue Crawford left untouched, and thus found that filing stale claims in bankruptcy doesn't violate the FDCPA. These rulings don't conflict with Crawford, they reason, because Crawford never reached the conflict issue.

Circuit Split

The issue of conflict between the FDCPA and the Bankruptcy Code has produced inconsistent results in circuit courts. The Second Circuit has held unequivocally that “the filing a proof of claim in bankruptcy court cannot form the basis for an FDCPA claim.” The Ninth Circuit has similarly held that a debtor's FDCPA claim was precluded by the Bankruptcy Code when a creditor tried to collect on a debt in violation of the debtor's discharge injunction.

In contrast, the Seventh Circuit found no irreconcilable conflict between the FDCPA and the Bankruptcy Code and found that FDCPA claims premised on violations of the automatic stay and discharge injunctions could proceed. A 2013 case from the Third Circuit considered all of these circuit court cases and ultimately sided with the Seventh Circuit, holding that when “FDCPA claims arise from communications a debt collector sends a bankruptcy debtor in a pending bankruptcy proceeding, and the communications are alleged to violate the Bankruptcy Code or Rules, there is no categorical preclusion of the FDCPA claims,” according to research conducted by Bloomberg BNA.

To contact the reporter on this story: Stephanie Cumings in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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