Consumer Finance Insights
May 26, 2016

Eleventh Circuit Appellate Panel Finds FDCPA Claims Not Preempted by the Bankruptcy Code on Time Barred Debts

EDITOR’S NOTE:  This post was guest-authored by Christopher J. Somma, an attorney in Goodwin Procter’s Consumer Financial Services Litigation Practice.  Mr. Somma represents clients in distressed loan workouts, forbearances, restructurings, commercial and residential foreclosures, UCC foreclosure sales, distressed portfolio and asset sales, property disposition, creditors’ rights and insolvency, origination of commercial real estate loans, asset-based and structured-based finance, note and mortgage sales and other issues surrounding OREOs.



In an opinion issued May 24th in two consolidated cases, a federal appellate panel for the Eleventh Circuit could not find an “irreconcilable conflict” between the Bankruptcy Code and the Fair Debt Collections Practices Act (“FDCPA”) as determined by the district court in a putative class action brought by bankruptcy debtors alleging that the practice of filing proofs of claim on time barred debt violated the FDCPA.  “Although the Code certainly allows all creditors to file proofs of claim in bankruptcy cases, the Code does not at the same time protect those creditors from all liability.  A particular subset of creditors – debt collectors – may be liable under the FDCPA for bankruptcy filings they know to be time-barred.”  The Proofs of Claim in the cases at issue were filed during the pendency of two Chapter 13 Bankruptcy cases but were both filed well after the lapsing of the applicable Statute of Limitations.

Both debtors brought putative class action suits against the debt collectors alleging a violation of the FDCPA at 15 U.S.C. § 1692e which prohibits debt collectors from using “any false, deceptive or misleading representations or means in connections with the collection of any debt” which includes attempts to collect debt not “expressly authorized by the agreement creating the debt or permitted by law.”  Both debtors claimed that the collection of time barred debts via the Proofs of Claim process was unfair, unconscionable, deceptive and misleading is in violation of the FDCPA.  The debt collectors moved to dismiss which the district court granted reasoning that the Bankruptcy Code affirmatively authorizes creditors to file proofs of claim on time barred debt.  The appellate panel for the Eleventh Circuit disagreed.  “The Bankruptcy Code does not preclude an FDCPA claim in the context of a Chapter 13 bankruptcy case when a debt collector files a proof of claim it knows to be time-barred.  We recognize that the [Bankruptcy] Code allows creditors to file proofs of claim that appear on their face to be barred by the statute of limitations.  However, when a particular creditor – a designated ‘debt collector’ under the FDCPA – files a knowingly time-barred proof of claim in a debtor’s Chapter 13 bankruptcy, that debt collector will be vulnerable to a claim under the FDCPA.”  The two cases are Johnson v. Midland Funding LLC (D.C. Docket No. 1:14-cv-00322-WS-Cand, Court of Appeals Case No. 15-11240) and Brock v. Resurgent Capital Services, L.P. (D.C. Docket No. 1:14-cv-00324-WS-M, Court of Appeals Case No. 15-14116)