New Case on Bankruptcy Stale Claims and the Fair Debt Collection Practices Act

What happens when a creditor files a claim for a time-barred debt in a consumer bankruptcy case? Not too long ago, the U.S. Court of Appeals for the Eleventh Circuit ruled that such a filing violated the Fair Debt Collection Practices Act (FDCPA), in effect ruling in favor of the debtor. However, according to a recent article from Bloomberg BNA, the U.S. Court of Appeals for the Eighth Circuit has “split from other circuit courts” by holding that “a claim subject to a statute of limitations defense could be filed in the bankruptcy case without violating the FDCPA.” The case is Nelson v. Midland Credit Mgmt., Inc., and it was decided on July 11, 2016.
Why should Oak Park residents who are thinking about filing for personal bankruptcy pay attention to a case like this one?
Implications of Cases Regarding Stale Claims in Bankruptcy
What does this mean for debtors in Illinois? While bankruptcy cases from the Chicago area are not governed by either the Eleventh Circuit’s decisions or the Eighth Circuit’s decisions, court cases from those circuits nonetheless can be persuasive to judges. In other words, an Illinois judge will not have to abide by the recent Eighth Circuit holding but could find the court’s reasoning convincing enough to apply a similar analysis. Indeed, a decision from the U.S. Bankruptcy Court in the Northern District of Illinois earlier this year held that a creditor’s proof of claim on time-barred debts does not represent a violation of the FDCPA or the Bankruptcy Code.
In that case, Glenn v. Cavalry Investments, LLC, the court determined that “the filing of a proof of claim on a time-barred debt is not deceptive per se.” In other words, the act of seeking payment for a debt for which the statute of limitations already has expired is not, according to the Illinois bankruptcy court, deceptive in and of itself such that it might violate the FDCPA. The court went on to explain that, when a creditor is owed a debt that gives rise to a claim under the Bankruptcy Code, the creditor can assert that claim. Denying the creditor the right to assert that claim could amount to a denial of due process under the Bankruptcy Code and the Fifth Amendment of the U.S. Constitution, the court emphasized.
In its decision, the Illinois bankruptcy court rejected the Eleventh Circuit’s holding in Crawford v. LVNV Funding, LLC.
Issue Could Be Ripe for U.S. Supreme Court
In addition, there is perhaps an even more important issue than the fact that a decision (like the recent one from the Eighth Circuit) could be persuasive authority for an Illinois case. As the Bloomberg BNA article emphasizes, the fact that the circuit courts are now split over whether the FDCPA prohibits a creditor from filing a proof of claim on a time-barred debt could make the case ripe for a review from the U.S. Supreme Court.
As you might remember, a writ of certiorari (i.e., a document asking the U.S. Supreme Court to hear the case) was already filed in Crawford v. LVNV Funding, LLC, and the Supreme Court denied the petition in April 2015. You can see the timeline for the Supreme Court’s denial of the petition on scotusblog.com.
Now that the Eighth Circuit has weighed in, however, and has rejected the holding from the Eleventh Circuit, the Supreme Court potentially could decide that it is time to make a decision about the issue of time-barred debt claims. We will need to wait and see, but it is important to note that a holding from the U.S. Supreme Court would become binding for Illinois courts.
Contact an Oak Park Bankruptcy Lawyer
If you are thinking about filing for bankruptcy protection or have questions about your options, an experienced Oak Park bankruptcy lawyer can speak with you today. Contact the Emerson Law Firm for more information.
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