On July 10, 2014, the United States Court of Appeals for the 11th Circuit answered the question of whether the filing of a proof of claim to collect a stale debt in a Chapter 13 bankruptcy proceeding violates the Fair Debt Collection Practices Act. See Crawford v. LVNV Funding, LLC., __F.3d ___, 2014 WL 3361226 (11th Cir. July 10, 2014), citing, 15 U.S.C. 1692-1692p (2006). Holding that the FDCPA’s broad language, prior court precedent, and the record before it, compelled the conclusion that the defendant’s conduct of filing a proof of claim approximately 4 years after the debt would have been enforceable in both federal and state court was a violation of the FDCPA.
In Crawford, Crawford owed $2,307.99 to a furniture company. The furniture company charged off the debt in 1999 and in September 2001, a company affiliated with LVNV acquired the debt from the furniture company. The last transaction on the account occurred one month later in October 2001 and under the three-year Alabama statute of limitations that governed the account, the debt would have been unenforceable in October 2004. Subsequently, on February 2, 2008, Crawford filed bankruptcy and LVNV filed a proof of claim. Crawford filed an adversary against LVNV alleging that the filing of a stale claim was a routine business practice and that attempting to claim Crawford’s time barred debt violated the FDCPA. The bankruptcy court dismissed the adversary and the district court affirmed the dismissal.
In reversing, the 11th U.S. Court of Appeals examined the purpose of the FDCPA and noted that the FDCPA “imposes open-ended prohibitions on, inter alia, false, deceptive, or unfair” debt collection practices. See Crawford v. LVNV Funding, LLC., __F.3d ___, 2014 WL 3361226 (11th Cir. July 10, 2014), citing, Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 587, 130 S.Ct. 1605, 1615 (2010). The court noted that Congress passed the law after finding “abundant evidence” of such practices and determining that “existing laws and procedures” were “inadequate” to protect consumer debtors. See Crawford v. LVNV Funding, LLC., __F.3d ___, 2014 WL 3361226 (11th Cir. July 10, 2014), citing, 15 U.S.C. 1692(b). The Court also noted that Congress created a private right of action and in order to determine whether LVNV violated the statute, the place to start was the statute itself. Further, to evaluate whether a debt collector’s conduct is deceptive, misleading, unconscionable or unfair, courts have adopted the least sophisticated consumer standard. In other words, the question according to the 11th Circuit is not whether a particular plaintiff-consumer was deceived, but whether the least sophisticated consumer would have been deceived by the debt collector’s conduct. See Crawford v. LVNV Funding, LLC., __F.3d ___, 2014 WL 3361226 (11th Cir. July 10, 2014), citing, Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1177 n.11 (11th Cir. 1985). Here, LVNV filed the proof of claim knowing that if no objection was raised it would be and in this case, it was paid out funds in the bankruptcy. However, had LVNV filed the lawsuit in state court to collect the debt, there is ample case law, and LVNV acknowledged, that such an action would be a violation of the FDCPA. The same is true in the bankruptcy context. Statutes of limitations provide protection to defendants due to the loss of evidence over a certain period of time by fading memories, death, disappearance of witnesses, etc. The filing of the proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt. The “least sophisticated” Chapter 13 debtor may be unaware that a claim is time barred and unenforceable and thus fail to object to such a claim especially in light of the Bankruptcy Code’s automatic allowance provision for claims. For these reasons, the filing of a time barred claim against Crawford was unfair, unconscionable, deceptive and misleading within the scope of Sections 1692e and 1692f of the FDCPA.
The Crawford opinion is of particular importance to consumer debt buyers who often times receive very few records and information on consumer debt they buy. The opinions of this blog are solely the author’s and any comments, suggestions and replies can be sent to firstname.lastname@example.org. Happy Labor Day!