Supreme Court Declines to Hear Case on Bankruptcy and Consumer Protection

The U.S. Supreme Court won’t be weighing in on whether consumers can be liable for debts, for which the statute of limitations has run out, when they file for bankruptcy. Instead, the U.S. Supreme Court will allow the recent consumer-friendly decision from the 11th Circuit to stand. Although the facts of the case don’t directly implicate consumers or debt collectors in the Chicago area, the U.S. Supreme Court’s decision to deny the petition for writ of certiorari likely will have a positive impact on Oak Park consumers.
Facts of the Case: Crawford v. LVNV Funding
In order to understand how the Supreme Court’s decision not to hear a case may have an impact on debtors in Illinois and other states across the country, we need to take a close look at the facts of Crawford v. LVNV Funding. The Crawford case began in the U.S. Bankruptcy Court for the Middle District of Alabama. Prior to filing for bankruptcy, the debtor owed money to a furniture company. The debtor incurred that debt back in 2001, and the statute of limitations for enforcing the debt ran out three years later in 2004.
Now, let’s jump ahead by four years. In 2008, the debtor filed for Chapter 13 bankruptcy in order to reorganize his debts. Sometime after 2001, LVNV Funding—a debt buyer—acquired the 2001 debt from the furniture store. During the personal bankruptcy proceeding, LVNV Funding filed a proof of claim form, attempting to recoup the debt, despite the fact that the state’s statute of limitations had run out. In case you weren’t sure, a proof of claim form is something that’s used by a creditor during a bankruptcy proceeding simply to indicate how much the debtor owes to that creditor at the time of the bankruptcy filing.
Time-Barred Debts and Bankruptcy
The debtor argued that LVNV Funding was trying to claim a time-barred debt, which is prohibited under the FDCPA. The judge in the bankruptcy case dismissed the debtor’s argument, and the district court affirmed that ruling in favor of LVNV Funding. However, once the case reached the 11th Circuit, the decision came down in favor of the debtor. According to the Court, bankruptcy courts have been seeing a “deluge” of proofs of claim on debts that are no longer enforceable due to the statutes of limitation in various state statutes. The Court then had to decide whether proofs of claim filed to collect old debts through bankruptcy violates the terms of the FDCPA.
The 11th Circuit ultimately decided that the FDCPA does prohibit debt collectors from filing proofs of claim to obtain old debts through bankruptcy. Specifically, the Court emphasized that, if a collector were able to file a proof of claim once the debtor files for bankruptcy, it would mislead a debtor into thinking that the debt actually is enforceable. The Court described such a practice as “deceptive” and “unconscionable,” and in violation of FDCPA Sections 1692e and 1692f. The Court also emphasized that permitted such proofs of claim would prevent creditors with legitimate claims from having proper access to funds in the event of a bankruptcy filing.
While the U.S. Supreme Court’s decision to decline hearing the case doesn’t clearly mean that the 11th Circuit decision will prevail indefinitely, it does suggest that it’s currently persuasive and could benefit debtors in the Illinois area.
Do you have questions about your rights under the Fair Debt Collection Practices Act (FDCPA) or concerns about debt liabilities when you file for personal bankruptcy? You should talk with an experienced Oak Park consumer protection lawyer as soon as possible. An advocate at the Emerson Law Firm can speak with you today.
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