Stale Claim in Bankruptcy Doesn't Violate Debt Collection Law

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By Daniel Gill

July 12 — A creditor that filed a proof of claim in a consumer bankruptcy case didn't violate the Fair Debt Collection Practices Act (FDCPA), even though the claim was time-barred by an expired statute of limitations, the Eighth Circuit held July 11 ( Nelson v. Midland Credit Mgmt., Inc., 2016 BL 221120, 8th Cir., No. 15-2984, 7/11/16 ).

The U.S. Court of Appeals for the Eighth Circuit split from other circuit courts, including the Eleventh Circuit, and held that a claim subject to a statute of limitations defense could be filed in the bankruptcy case without violating the FDCPA.

Judge Duane Benton said that the filing of the claim was not the same as “litigating” or “threatening to litigate” against the debtor, and that the Bankruptcy Code and Rules provided the debtor with adequate protection from unfair debt collecting acts.

Because of the split in circuit court decisions, the issue might be ripe for the U.S. Supreme Court to hear an appeal of one of these cases to resolve the inconsistent application of the FDCPA. Until such time, there will continue to be disparate results depending on the jurisdiction of any time-barred bankruptcy claims.

Claim Disallowed by Bankruptcy Court

Debtor Domick R. Nelson filed a Chapter 13 bankruptcy case on Feb. 25, 2015. Chapter 13 of the Bankruptcy Code allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.

The Bankruptcy Code and Federal Rules of Bankruptcy Procedure require creditors of a Chapter 13 debtor to file proofs of claim in the case before a fixed deadline. Under Bankruptcy Code Section 502(a), such proof of claim is deemed “allowed” unless a party in interest files an objection to that claim.

Midland Credit Management, Inc. was a debt collector, acting as an agent for a creditor to which the debtor owed $751. That debt dated back to November 2006, the court said.

Nelson filed an objection to the claim on the grounds that it was time-barred by operation of the applicable Missouri five-year statute of limitations. The bankruptcy court disallowed the claim, and the debtor filed an action in the district court under the FDCPA for statutory damages provided in that act.

No Liability for ‘Accurate and Complete Claim.'

The district court dismissed the action for failure to state a claim, “holding that the FDCPA is not implicated by a debt collector filing an accurate and complete claim on a time-barred debt,” the Eighth Circuit said.

The debtor appealed, and the Eighth Circuit affirmed the ruling.

The FDCPA was enacted “to eliminate abusive debt collection practices,” the court said. Among other actions, the law “bars a debt collector from filing or threatening a lawsuit to collect a time-barred debt.”

However, “in the absence of a threat of litigation or actual litigation, no violation of the FDCPA has occurred when a debt collector attempts to collect on a potentially time-barred debt that is otherwise valid,” the court said, quoting Freyermuth v. Credit Bureau Servs., 428 F.3d 767 (8th Cir. 2001).

The court noted that the expiration of the statute of limitations did not affect the legitimacy of the underlying claim; instead, it eliminated the remedy of the claim holder. It could not sue to recover an otherwise actual debt.

“An accurate and complete proof of claim on a time-barred debt is not false, deceptive, misleading, unfair, or unconscionable under the FDCPA,” the court concluded.

Split Authorities

The debtor asked the court to follow the Eleventh Circuit and its decision in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014)(26 BBLR 1001, 7/24/14). In that case, a creditor was found to have violated the FDCPA's prohibitions against unfair, unconscionable, deceptive, or misleading conduct” by knowingly filing a proof of claim for a time-barred debt.

The court declined to follow the Eleventh Circuit decision. Crawford “ignores the differences between a bankruptcy claim and actual or threatened litigation,” the court said. The court noted that bankrupt debtors are aided by trustees acting in a fiduciary capacity and that “[d]efending a lawsuit to recover a time-barred debt is more burdensome than objecting to a time-barred proof of claim.”

In a bankruptcy case, an objection to a claim is much more a summary and streamlined proceeding than a full-blown lawsuit, the court said. There is “no need to protect debtors who are already under the protection of the bankruptcy court,” the court said, quoting the Second Circuit in Simmons v. Foundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010), another jurisdiction finding no FDCPA violation by the filing of a proof of claim for a time-barred obligation.

Judges Roger L. Wollman, and Bobby E. Shepherd joined the opinion.

Richard A. Voytas, Jr., Voytas & Company, St. Louis, represented the debtor. Midland Credit was represented by Spencer & Fane, Omaha, Neb. and Balch & Bingham, Birmingham, Ala.

The court also considered “friend of the court” briefs by ACA International and the National Ass'n of Consumer Bankruptcy Attorneys.

To contact the reporter on this story: Daniel Gill in Washington at

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

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