As seen in The Cramdown, Spring 2016.
By: Amy Drushal
The Eleventh Circuit created new precedent (unfavorable precedent from a creditor’s perspective) in Crawford v. LVNV Funding LLC, 758 F. 3d 1254 (11th Cir. 2014), when it held that filing a proof of claim on a time-barred debt violated the FDCPA. What the Eleventh Circuit declined to address in Crawford was whether or not the Bankruptcy Code preempts a claim under the FDCPA in such a circumstance. The Courts in the Middle District of Florida are beginning to answer that question.
In the third decision answering the question affirmatively, Judge Steele, United States District Judge for the Middle District of Florida, held in Castellanos v. Midland Funding LLC, 15-CV-559 (M.D. Fla., Jan. 4, 2016) that the Bankruptcy Code preempts the FDCPA with respect to filing time-barred proofs of claim. In Castellanos, the individual plaintiff owed a credit card debt and filed for bankruptcy protection under Chapter 13 jointly with her husband. The defendant, owner of the debt, filed a proof of claim in the plaintiffs’ bankruptcy case, despite the fact that the statute of limitations had run on the debt prior to the filing of the bankruptcy petition. Subsequently, the plaintiff then filed suit in the Middle District of Florida, alleging that (1) the defendant violated the FDCPA by making false representations of the legal status of the debt; (2) using a false representation and deceptive means to collect a debt; and (3) using unfair and unconscionable means to collect a debt because the defendant filed a time-barred proof of claim. The defendant moved to dismiss the complaint, arguing that the Bankruptcy Code permits creditors to file time-barred proofs of claim and, thus, cannot constitute a violation of the FDCPA.
Judge Steele began his analysis with a discussion of Crawford, noting that the Eleventh Circuit declined to address the issue of whether the Bankruptcy Code preempts the FDCPA, and recognized that sister circuits are split on the issue. Judge Steele also noted other District Courts that have addressed the issue. Mears v. LVNV Funding LLC, 2015 WL 7067856 (M.D. Fla., Nov 5, 2015) (holding Bankruptcy Code precludes an FDCPA claim for a time-barred proof of claim); Neal v. Atlas Acquisitions, LLC, 2015 WL 5687785 (M.D. Fla., Sept. 25, 2015) (holding Bankruptcy Code precludes an FDCPA claim for a time-barred proof of claim); In re Seak, 2015 WL 631578 (Bankr. M.D. Fla., Jan. 22, 2015) (allowing debtor to maintain a cause of action under FDCPA for filing a time-barred proof of claim). In looking at the decisions of the other Courts, Judge Steele noted that “the Bankruptcy Code provides the debtor a means to object to impermissible proofs of claim, such as those that are time barred.” The Court recognized that the “FDCPA and Bankruptcy Code are at an irreconcilable conflict because the FDCPA prohibits filing a time barred claim while the Bankruptcy Code permits it. In such cases, the FDCPA must yield to the Bankruptcy Code, which already provides protections for debtors faced with stale proofs of claims.” The Court joined in the majority of the Courts in the Middle District of Florida in holding that a private right is not available under the FDCPA against creditors who file time-barred proofs of claim in Bankruptcy Court. Accordingly, the Court dismissed plaintiff’s complaint with prejudice against filing any independent FDCPA claim based on the same facts but without prejudice to the debtor’s ability to object to the claim in the bankruptcy case.
