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Supreme Court Rules that FDCPA Law Not Applied to Time-Barred Debt Bankruptcy Claim
In a ruling handed down on May 15, the United States Supreme Court held that a debt collector’s filing of a proof of claim on time-barred debt in a consumer bankruptcy proceeding is not a “false, deceptive, misleading, unfair, or unconscionable” debt collection practice within the meaning of the Fair Debt Collection Practices Act (FDCPA). See Midland Funding, LLC v. Johnson, Case No. 16-348, 581 U.S. ___ (2017). Chief Justice Roberts and Justices Kennedy, Thomas, and Alito joined in Justice Breyer’s decision. Justice Gorsuch took no part in the consideration or decision of the case.
The Midland case arises out of a 2014 Chapter 13 petition, in response to which the defendant debt-collector filed a proof of claim for the payment of decades-old unpaid credit card debt the company had acquired. After the bankruptcy court dismissed the time-barred claim, the debtor filed a separate civil action in District Court alleging that the debt collector had violated the FDCPA. Finding that application of the FDCPA was precluded by the Bankruptcy Code, the District Court dismissed the suit. However, the Court of Appeals for the Eleventh Circuit reversed, finding “no irreconcilable conflict between the FDCPA and the [Bankruptcy] Code.” See Johnson v. Midland Funding, LLC, 823 F.3d 1334, 1336 (11th Cir. 2016).
The Supreme Court reversed. Writing for a 5-3 majority, Justice Breyer explained why the Court disagreed with the Eleventh Circuit panel’s conclusion that Midland was potentially liable for damages under the FDCPA for attempting to collect in bankruptcy on decade-old credit card debt. The Court held that the filing of a time-barred claim in a bankruptcy proceeding is not “false, deceptive, or misleading” because, among other reasons, “[t]he law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense” and therefore “we see nothing misleading or deceptive in the filing of a proof of claim that, in effect, follows the Code’s similar system.” The ruling also noted several differences between bankruptcy proceedings and a civil action to collect a debt—including that the “audience in [consumer] bankruptcy cases includes a trustee . . . likely to understand” the nature of a proof of claim and the necessity of objecting where appropriate.
Justice Sotomayor filed a dissenting opinion—joined by Justice Ginsburg and Justice Kagan—arguing that attempting to collect time-barred debt is both “unfair” and “unconscionable” because, among other reasons, the business model adopted by “professional debt collectors” depends on the hope “that no one notices that the debt is too old to be enforced by the courts.” Justice Sotomayor’s dissent also took issue with the majority’s claim that “structural features of the bankruptcy process reduce the risk that state debt will go unnoticed and thus be allowed,” agreeing with the Government’s amicus brief that trustees “cannot realistically be expected to identify every time-barred . . . claim filed in every bankruptcy.”