<b><i>Crawford v. LVNV Funding, LLC</i></b>

Does the Bankruptcy Code Preclude the FDCPA?

The Crawford court specifically declined to weigh in on the topic of whether the Bankruptcy Code (Code) preempts or precludes the FDCPA. While not “weighing in” on the issue of preclusion, the Eleventh Circuit nevertheless permitted the debtor to maintain a cause of action for violation of the FDCPA in addition to the remedies afforded under the Code. See Seak v. Antio, LLC, et al. (In re Seak), No. 3:13-BK-5446-PMG, 2015 WL 631578 at *3 (Bankr. M.D. Fla. Jan. 22, 2015). Since then, bankruptcy courts have become divided on the issue.

Some courts have held that a debtor can maintain a cause of action for an FDCPA violation for an otherwise accurate proof of claim on a time-barred debt. The Code did not expressly repeal the FDCPA, and these courts have avoided interpreting Congress' perceived intent to repeal by implication. See Feggins v. LVNV Funding, LLC (In re Feggins), 540 B.R. 895 (Bankr. M.D. Ala. 2015); Holloway v. American Infosource, LP, et al. (In re Holloway), 538 B.R. 137 (Bankr. M.D. Ala. 2015); Perkins v. LVNV Funding, LLC (In re Perkins), 533 B.R. 242 (Bankr. W.D. Mich. 2015); Martel v. LVNV Funding, LLC (In re Martel), 539 B.R. 192 (Bankr. D. Me. 2015).

The remedies under the Code and FDCPA are viewed as complimentary and cumulative rather than mutually exclusive. Id. There is no apparent conflict between the Code and the FDCPA because the Code provides the procedure for orderly review of proofs of claim, while the FDCPA disciplines debt collectors who file false proofs of claim. See Trevino v. HSBC Mortgage Services, Inc., et al. (In re Trevino), 535 B.R. 110, 138-39 (Bankr. S.D. Tex. 2015). The FDCPA is a secondary yoke that debt collectors bear for the privilege of being debt collectors.

Other bankruptcy courts have reached the opposite conclusion, that the FDCPA is precluded by the Code. Fundamentally, when the Code and the FDCPA present an irreconcilable conflict, the earlier enacted FDCPA should yield to the Code. See Moses v. LVNV Funding, LLC (In re Moses), 542 B.R. 5, 12 (Bankr. N.D. Ala. 2015). For these courts, a debtor's sole mechanism for addressing an objectionable claim in bankruptcy court is already set forth in the claims process and should be addressed within that construct. See Jenkins v. Credit Management, Inc., et al. (In re Jenkins), 538 B.R. 129, 133 (Bankr. N.D. Ala. 2015).

Because Section 502 specifically contemplates that a creditor may file a proof of claim on a time-barred debt, the FDCPA is in direct conflict with the Code and is precluded. See Martin v. Quantum 3 Group (In re Martin), 545 B.R. 164, 172 (Bankr. N.D. Miss. 2015). Remedies available to a debtor harmed in the course of a bankruptcy proceeding are expressly set forth in the Code; FDCPA remedies are only available when a debtor has no other remedy under the Code. See Roman-Perez v. operating Partners, LLC, et al. (In re Roman-Perez), 527 B.R. 844, 864 (Bankr. D.P.R. 2015), reconsideration denied, No. 13-10908 (ESL), 2015 WL 1876851 (Bankr. D.P.R. Apr. 22, 2015).

Is Filing a Proof of Claim 'Debt Collection' Under the FDCPA?

The FDCPA does not define “debt collection.” Nevertheless, some bankruptcy courts easily reach the conclusion, often without further discussion, that the filing of an otherwise wholly accurate proof of claim on a time-barred debt is “debt collection” within the meaning of the FDCPA.

However, other courts have grappled with whether this otherwise procedural or ministerial act is truly debt collection. The public policy behind the FDCPA is to stop the use of abusive, deceptive and unfair debt collection practices by many debt collectors. Is misfiling a proof of claim in a bankruptcy case really the kind of debt collection act Congress sought to curtail when drafting the FDCPA?

The experience of a debtor in bankruptcy court stands in sharp contrast to a consumer responding to debt collection calls, demand letters, or harassment from a debt collector. Bankruptcy courts have especially focused on the distinction between a proof of claim and a state court collection suit because debtors are protected by the bankruptcy system. See Perkins v. LVNV Funding, LLC (In re Perkins), 533 B.R. 242 (Bankr. W.D. Mich. 2015).

In this debtor-initiated forum, creditors file proofs of claim that, on their face, give the debtor (and usually his or her counsel) sufficient information to determine if the debt is time-barred. Debtors are protected by the automatic stay, the Code's discharge provisions, the established claims process, and the involvement of involvement of both counsel and a trustee. See Broadrick v. LVNV Funding, LLC, et al. (In re Broadrick), 532 B.R. 60 (Bankr. M.D. Tenn. 2015); Dunaway LVNV Funding, LLC, et al. (In re Dunaway), 531 BR 267 (W.D. Missouri 2015).

Who Is the Consumer in an FDCPA Claim?

In the instance of a Chapter 13 case, the filing of a proof of claim is an action taken by a creditor against the debtor. The proper party to bring an FDCPA claim is the debtor. In the event of a Chapter 7 case, however, the action is taken by a creditor against the bankruptcy estate. See Dunaway LVNV Funding, LLC, et al. (In re Dunaway), 531 BR 267 (W.D. Missouri 2015). The trustee is the proper party to bring an FDCPA claim in a Chapter 7 case.

Under the FDCPA, the term “consumer” is defined as “any natural person obligated or allegedly obligated to pay any debt.” 15 U.S.C. ' 1692a(3). Does the bankruptcy estate qualify as a “consumer” under the FDCPA? Did Congress intend to convey a private right of action under the FDCPA upon a bankruptcy estate? Thinking further, what happens in the familiar situation of a Chapter 13 case that converts to a Chapter 7? Does the debtor retain ownership of the FDCPA claim or does it pass to the Chapter 7 trustee?

Should Time-Barred Debt And Extinguished Debt Be Treated Differently?

The time in which a creditor can sue to collect a debt is generally governed by state statute. Most states impose a statute of limitations, through which the passage of time limits the remedies of a creditor to collect a debt, but the debt obligation still exists. The statute of limitations operates as an affirmative defense and can be waived if not asserted.

A minority of state jurisdictions treat the time for a creditor to bring suit as a statute of repose, meaning that the passage of time actually extinguishes existence of the debt obligation. Thus, this is not an affirmative defense; after the passage of a specified amount of time, there is no obligation to defend against.

As stated above, bankruptcy courts diverge on whether filing a proof of claim on a time-barred debt is a violation of the FDCPA. The courts do not diverge on the issue of filing a proof of claim on a debt that no longer exists due to a statute of repose. Id. The limitations-repose distinction underscores the conflict for bankruptcy courts. If the debt is potentially enforceable but for the assertion of limitations, then the FDCPA adds another ' and possibly conflicting and unnecessary ' layer of liability for creditors that file otherwise wholly accurate proofs of claim.

As test cases challenging the Crawford decision wind through the appellate system and, eventually, the anticipated conflict between the circuit courts of appeal, such conflict will require a Supreme Court resolution. In the meantime, bankruptcy courts will continue to contend with the issues of statutory preclusion, the meaning of “debt collection” and “consumer” in the FDCPA context, and the effect of the passage of time on the enforceability of such debts. In the past year, no consensus has emerged at the bankruptcy court level as to these issues and none is likely to emerge anytime soon. Practitioners on both sides of the controversy must continue to proceed with caution.

Wayne Kitchens is co-managing partner and Sabrina Neff is an associate at Hughes Watters Askanase, LLP in Houston. They may be reached at [email protected] and [email protected], respectively.