The 11th Circuit Court of Appeals recently decided a case which puts debt buyers at risk when filing proofs of claim on older accounts. In Crawford v. LVNV Funding, LLC, No. 13-12389 (decided July 10, 2014), LVNV, one of the largest debt buyers in the country, filed a proof of claim in a Chapter 13 case for a $2,037.99 balance which was originally owed to Heilig -Meyers furniture company. Based on the date of the last transaction on the account and the three-year Alabama statute of limitations, the debt became unenforceable in October of 2004. LVNV’s proof of claim was not filed until over four years later.
Mr. Crawford filed an adversary proceeding against LVNV, alleging violations of the Fair Debt Collection Practices Act (FDCPA), which was dismissed by the bankruptcy court. The dismissal was affirmed by the district court. In reversing the district court, the 11th Circuit sent a clear message to large volume debt buyers like LVNV.
“A deluge has swept through U.S. bankruptcy courts of late. Consumer debt buyers — armed with hundreds of delinquent accounts purchased from creditors — are filing proofs of claim on debts deemed unenforceable under state statutes of limitations.” Id. at p. 2. “A Chapter 13 debtor’s memory of a stale debt may have faded and personal records documenting the debt may have vanished… Similar to the filing of a stale lawsuit, a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt…” Id. at p. 11.
“Given the Bankruptcy Code’s automatic allowance provision, the otherwise unenforceable time-barred debt will be paid from the debtor’s future wages as part of his Chapter 13 repayment plan. Such a distribution of funds to debt collectors with time-barred claims then necessarily reduces the payments to other legitimate creditors with enforceable claims. Furthermore, filing objections to time-barred claims consumes energy and resources in a debtor’s bankruptcy case, just as filing a limitations defense does in state court. For all of these reasons…LVNV’s filing of a time-barred proof of claim against Crawford in bankruptcy was “unfair,” “unconscionable,” “deceptive,” and “misleading” within the broad scope of [15 U.S.C.] §1692e and §1692f.” Id. at p. 12.
A quick review of the documents filed in support of the debt buyer’s proof of claim will often tell you whether it is in violation of the FDCPA. Simply look for the date of last payment or the last transaction date and compare it to your state’s statute of limitations for a written contract or open-ended account (whichever would apply). If the debt is old enough that a collection suit in state court would be barred, then debt buyer is in violation of the FDCPA. This entitles your client to recover up to $1000 in statutory damages which can be used to reduce obligations under the Chapter 13 plan. In addition, attorneys’ fees can be recovered from the debt buyer as in any other FDCPA case.
It is worth noting that this ruling only applies to debt buyers. Original creditors collecting their own debts are exempted from the FDCPA. Therefore, while an original creditor’s claim that is past the applicable statute of limitations may be disallowed, the original creditor would not be in violation of the FDCPA.
The full text of the Crawford opinon can be found here: http://media.ca11.uscourts.gov/opinions/pub/files/201312389.pdf