U.S. Supreme Court: Time-Barred Claims can be Filed in Bankruptcy Proceedings

Can a debt collector file a time-barred claim as a result of the statute of limitations running out against a debtor in a consumer bankruptcy proceeding without violating the Fair Debt Collection Practices Act (FDCPA)? That was the question the U.S. Supreme Court had to decide in Midland Funding, LLC v. Johnson. The Court found ruled against the debtor in a 5-3 decision, overturning the Eleventh Circuit’s ruling in favor of the debtor.
Debtor Argues Time-Barred Claims in Bankruptcy Proceedings Prohibited by FDCPA
We have discussed this case previously, prior to it being decided by the U.S. Supreme Court. It is important to understand the facts of the case in order to appreciate the Supreme Court’s ruling. As such, we would like to give you a brief recap: In 2014, a debtor filed for Chapter 13 bankruptcy. Shortly thereafter, Midland Funding, LLC, a debt collector, filed a “proof of claim,” which asserted that the debtor owed $1,879.71 in credit card debt. The proof of claim stated clearly that the charge last appeared on the debtor’s account in May 2003, which was over 10 years prior to the debtor’s decision to file for bankruptcy.
The debtor had filed for bankruptcy in the Federal District Court for the Southern District of Alabama. Under Alabama law (Ala. Code Section 6-2-34), the statute of limitations for such a debt is six years. As such, the statute of limitations had run out, which Midland Funding, LLC clearly acknowledged in its proof of claim. The debtor argued that, by filing the proof of claim on a debt for which the statute of limitations had run, Midland Funding, LLC violated the FDCPA.
Supreme Court Weighs in on Time-Barred Claims
The Court’s decision was just released, and it ruled against the debtor. In short, the Court held that, when a creditor or debt collector files a time-barred claim in a consumer bankruptcy proceeding, such a filing does not constitute a false, deceptive, misleading, unfair, or unconscionable practice such that it is prohibited by the FDCPA.
Specifically, the decision, delivered by Justice Breyer, stated: “Like the majority of Courts of Appeals that have considered the matter, we conclude that Midland’s filing of a proof of claim that on its face indicates that the limitations period has run does not fall within the scope of any of the five relevant words of the Fair Debt Collection Practices Act.” Why did the Court decide this way? As a SCOTUSblog post reports, the decision came from “a sharply divided Supreme Court,” with Justices Ginsburg, Sotomayor, and Kagan dissenting.
The debtor argued that, among other things, a “proof of claim” is an enforceable claim, and that Midland Funding, LLC violated the FDCPA by filing a claim that was “false” due to the fact that the statute of limitations had run. The Court determined that this interpretation did not line up with the FDCPA’s prohibition against false claims. The Court also emphasized that the Bankruptcy Code creates a “delicate balance of a debtor’s protections and obligations,” and that to apply the FDCPA here “would upset that delicate balance.”
Contact a Bankruptcy Lawyer in Oak Park
Issues surrounding time-barred claims are complicated. The U.S. Supreme Court ruling will now determine how certain time-barred claims are treated, but many other questions remain. If you are unsure about debt you owe for which the statute of limitations has run out, or if you are being contacted by collection agencies about time-barred debts, you should discuss your situation with an Oak Park consumer bankruptcy lawyer. Contact the Emerson Law Firm today to get started on your case.
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