The Harmonious Coexistence (or not) of the FDCPA and the BAPCPA
As seen in The Florida Bar Out-of-State, Fall 2016.
By: Megan W. Murray and Ashlyn Robinson
The Consumer Financial Protection Bureau has been actively reviewing its policies and procedures in recent months, and in July 2016 the U.S. watchdog for consumer finances unveiled its latest proposal to tighten regulations on the multibillion-dollar debt collection industry.1 One such proposal is a closer look at how time-barred debts are treated. The 11th Circuit in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), petition for cert. denied (LVNV Funding, LLC v. Crawford, 135 S. Ct. 1844 (U.S., Apr. 20, 2015)) addressed a debt-purchaser’s attempt to recover a time-barred debt from a bankrupt debtor by filing a proof of claim. In Crawford the court found that attempts to recover a time-barred debt constitute an impermissible collection activity and thus violate the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. § 1692, et seq. Crawford left unresolved, however, the issue of whether the FDCPA is preempted by the current Bankruptcy Code (otherwise known as BAPCPA),2 noting in a footnote that the defendant did not make this argument.3 As the Crawford court noted, there is a split in authority across the country on the issue of preemption and whether the two laws can coexist.4
On the one hand, some courts have found that the Bankruptcy Code preempts federal law including the FDCPA, noting that “[t]he FDCPA is designed to protect defenseless debtors and to give them remedies against abuse by creditors. There is no need to protect debtors who are already under the protection of the bankruptcy court, and there is no need to supplement the remedies afforded by bankruptcy itself.” See Simmons v. Roundup Funding, LLC, 622 F.3d 93, 95 (2d Cir. 2010) (“Federal courts have consistently ruled that filing a proof of claim in bankruptcy court (even one that is somehow invalid) cannot constitute the sort of abusive debt collection practice proscribed by the FDCPA, and that such a filing, therefore, cannot serve as the basis for an FDCPA action”) and Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002) (noting “[n]othing in [the Bankruptcy Code or FDCPA] persuades us that Congress intended to allow debtors to bypass the [c]ode’s remedial scheme when it enacted the FDCPA. While the FDCPA’s purpose is to avoid bankruptcy, if bankruptcy nevertheless occurs, the debtor’s protection and remedy remain under the Bankruptcy Code”).
On the other hand, those cases finding that the Bankruptcy Code does not preempt the FDCPA posit that both are enforceable because the FDCPA does not raise a direct conflict with the code. See, e.g., Simon v. FIA Card Ser., N.A., 732 F.3d 259, 274 (3d Cir. 2013) (finding that when “FDCPA claims arise from communications a debt collector sends a bankruptcy debtor in a pending bankruptcy proceeding, and the communications are alleged to violate the Bankruptcy Code or Rules, there is no categorical preclusion of the FDCPA claims”) and Randolph v. IMBS, Inc., 368 F.3d 726, 730 (7th Cir. 2004) (finding the Bankruptcy Code and the FCDPA statutes overlap but do not preempt; and as long as people can comply with both, the courts can enforce both).
In 2016, the 11th Circuit Court of Appeals took sides with the Third and Seventh circuits, finding that the Bankruptcy Code does not preempt the FDCPA. See Johnson v. Midland Funding, LLC, 2016 U.S. App. LEXIS 9478 (11th Cir. 2016) (noting while creditors can file proofs of claim under the Bankruptcy Code, the code will not protect creditors from all liability where a debt collector knowingly files a time-barred claim).
Below is an analysis of other circuits’ recent holdings on the issue.
Martel v. LVNV Funding, LLC, 539 B.R. 192 (Bankr. D. Me. 2015) (explaining that one federal statute does not preempt another and that the Bankruptcy Code and the FDCPA are not irreconcilable; creditors are under an obligation to follow both);
Roman-Perez v. Operating Partners Co., LLC, 527 B.R. 844 (Bankr. D.P.R. 2015) (concluding that the remedies afforded by the bankruptcy court to recover damages under 11 U.S.C. § 362(k)(1) preclude further damages under the FDCPA);
Claudio v. LVNV Funding, LLC, 463 B.R. 190 (Bankr. D. Mass. 2012) (finding that the FDCPA is inapplicable to the filing of proofs of claims in bankruptcy cases).
Garfield v. Ocwen Loan Servicing, LLC, 811 F.3d 86 (2d Cir. 2016) (explaining that the Bankruptcy Code precludes all claims under the FDCPA for conduct that violates a discharge injunction; however, FDCPA claims that do not violate the discharge injunction can still be brought under the FDCPA).
Guenot v. Candica, LLC, 2014 Bankr. LEXIS 57 (Bankr. D.N.J. 2014) (finding that allowing debtors to object to a claim by filing a complaint based on consumer protection laws instead of using the claims process in the bankruptcy court creates a direct and irreconcilable conflict; failing to recognize that the Bankruptcy Code preempts state law claims and FDCPA claims invites confusion).
Lovegrove v. Ocwen Loan Servicing, LLC, 2015 U.S. Dist. 112768 (W.D. Va. 2015) (explaining that a mortgage servicer is entitled to participate in bankruptcy; therefore, the Bankruptcy Code preempts the FDCPA).
Martin v. Quantum3 Grp., 545 B.R. 164 (Bankr. N.D. Miss. 2015) (the Bankruptcy Code does not prohibit the filing of time-barred claims as the code allows for time-barred claims and was enacted after the FDCPA);
Trevino v. HSBC Mortg. Servs., 535 B.R. 110 (Bankr. S.D. Tex. 2015) (finding that the Bankruptcy Code and FDCPA claims are not in conflict, and therefore relief under the FDCPA is not preempted by the code).
Kline v. Mortg. Elec. Sec. Sys., 2011 U.S. Dist. LEXIS 127559 (S.D. Ohio 2011) (agreeing with Simmons that filing a proof of claim in a bankruptcy proceeding cannot violate the FDCPA);
Perkins v. LVNV Funding, LLC, 533 B.R. 242 (W.D. Mich. 2015) (explaining that several differences exist between collection actions outside of bankruptcy and the filings of proofs of claim in bankruptcy, including protection from the automatic stay, the entry of the discharge injunction, the commencement of the process by the debtor and not the debt collector, and the oversight of the courts and trustees, thereby declining to adopt Crawford as unnecessarily expansive. The court ultimately determined that filing a stale proof of claim lies somewhere in between a per se violation of the FDCPA and no violation at all);
Broadrick v. LVNV Funding, LLC, 532 B.R. 60 (M.D. Tenn. 2015) (finding that the analysis between the FDCPA and the Bankruptcy Code’s proof of claim allowance should be viewed in light of the best way to limit the disharmony between the two laws, thereby giving effect to both).
Reed v. LVNV Funding, LLC, 2015 U.S. Dist. LEXIS 40457 (N.D. Ill. 2015) (holding that filing a claim in bankruptcy constitutes an indirect attempt to collect a debt that falls within the FDCPA’s parameters);
Patrick v. PYOD, LLC, 39 F. Supp. 3d 1032 (S.D. Ind. 2014) (following Crawford);
Avalos v. LVNV Funding, LLC, 531 B.R. 748 (Bankr. N.D. Ill. 2015) (following Crawford);
Brimmage v. Quantum3 Group, LLC, 523 B.R. 134 (Bankr. N.D. Ill. 2015) (explaining that the Bankruptcy Code does not preempt the FDCPA; they overlap and can be applied simultaneously).
Nelson v. Midland Credit Mgmt., 2016 U.S. App. LEXIS 12683 (8th Cir. 2016) (holding that “an accurate and complete proof of claim on a time-barred debt is not false, deceptive, misleading, unfair, or unconscionable under the FDCPA” and therefore, the FDCPA is not implicated by a debt collector filing an accurate and complete claim on a time-barred debt).
Goad v. MCT Group, 576 Fed. Appx. 707 (9th Cir. 2014) (following Walls when determining that the Bankruptcy Code precludes FDCPA claims).
At present there is no petition for certiorari pending in any of the above cases. At least in the 11th Circuit, creditors and debt buyers should be aware of what constitutes a “stale debt” under their respective state laws and heed caution when filing proofs of claim on debts with significant age.5
1 An outline of the proposal can be found at http://files.consumerfinance.gov/f/documents/20160727_cfpb_Outline_of_proposals.pdf
2 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) (Pub. L. 109–8, 119 Stat. 23, enacted April 20, 2005) made significant changes to the United States Bankruptcy Code.
3 Crawford, 758 F.3d at 1262 n.7.
5 See, e.g., Pack v. Unifund CCR Ptrns, 2008 U.S. Dist. LEXIS 117481, at *14 (M.D. Fla. Feb. 22, 2008) (noting the statute of limitations in Florida pursuant to Fla. Stat. § 95.031(1) begins to run when the “last element constituting the cause of action occurs”).