Seventh Circuit Holds That Proof Of Claim For “Stale” Debt Does Not Violate FDCPA

Lesson. The filing of a bankruptcy proof of claim for a time-barred debt does not violate the Fair Debt Collection Practices Act (FDCPA) in the Seventh Circuit, which includes Indiana.

Case cite. Owens v. LVNV Funding, 832 F.3d 726 (7th Cir. 2016) (pdf).

Legal issue. There were two: (1) whether a “claim” includes only legally-enforceable obligations and (2) whether a creditor’s attempt to collect on a time-barred debt in bankruptcy violates the FDCPA.

Vital facts. Defendant debt collector filed a proof of claim in a Chapter 13 bankruptcy case for a time-barred (“stale”) debt. The plaintiff debtor successfully objected to the claim and then sued the debt collector alleging FDCPA violations.

Procedural history. The district court dismissed the debtor’s action. The debtor appealed to the Seventh Circuit, which issued the opinion addressed here. Please note: the debtor later appealed to the U.S. Supreme Court, which refused to hear the case.

Key rules.

• A “claim” under the bankruptcy code is a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” A claim is not a cause of action.
• 
  The FDCPA prohibits the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. 1692e.

Holding. The Court first held that a claim on a time-barred debt “does not purport to be anything other than a claim subject to dispute in the bankruptcy case.” Thus a claim can include an unenforceable obligation. Next, the Court concluded that the defendant’s conduct was not deceptive or misleading so as to give rise to FDCPA liability.

Policy/rationale. The Court reasoned that the bankruptcy code contemplates that creditors will “file proofs of claim for unenforceable debts … and that the bankruptcy court will disallow those claims upon debtor’s objection.” The code and interpreting case law recognize that the term “claim” has a broad definition, including a right to payment, and whether the claim ultimately is enforceable is immaterial.

Moreover, the Court articulted that the information contained in the subject proof of claim was not misleading. Indeed, the information about the status of the debt was accurate. Whether the statute of limitations had run was apparent on the face of the proof of claim. Moreover, the debtor’s attorney successfully objected to the proof of claim.

Related posts.

• Worried About The Fair Debt Collection Practices Act?
• Fair Debt Collection Practices Act Claim Survives Motion To Dismiss
• Bankruptcy Proofs Of Claim And Standing/Loan Assignment Issues
• 6 Things To Remember About Proofs Of Claims In Indiana Bankruptcy Courts

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I frequently represent lenders, as well as their mortgage loan servicers, entangled in loan-related litigation. If you need assistance with such a matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted to your left.