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Supreme Court Holds Time-Barred Bankruptcy Proof of Claim Does Not Violate Fair Debt Collection Practices Act

The United States Supreme Court recently held that the filing of a time-barred proof of claim “is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the Fair Debt Collection Practices Act.” In Midland Funding, LLC v. Johnson, 581 U.S. ___ (2017), Aleida Johnson filed for bankruptcy under chapter 13 of the bankruptcy code in March 2014. Midland Funding, LLC subsequently filed a proof of claim relating to a credit-card debt in the amount of $1,879.71. In the claim, Midland stated that the last charge made on Johnson’s account was in May 2003, well outside the six year statute of limitations in Alabama. Johnson thus objected to the claim as being time barred, and it was disallowed. Johnson then filed suit against Midland seeking to recover damages against Midland for violation of the Fair Debt Collection Practices Act, which prohibits a debt collector from asserting any “false, deceptive, or misleading representation,” or using any “unfair or unconscionable means” to collect, or attempt to collect, a debt. The district court ruled that the Act did not apply to the filing of a time-barred proof of claim. The Eleventh Circuit Court of Appeals reversed, adding to the growing split among the circuits on the issue. The Supreme Court then granted certiorari. In overturning the Eleventh Circuit, the Court held that Midland had a “claim,” or right to payment, within the meaning of the bankruptcy code, regardless of whether the claim had expired. Because Midland had a claim within the meaning of the bankruptcy code, Midland was entitled to file a proof of that claim. Simply put, “[t]he law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense, and there is nothing misleading or deceptive in the filing of a proof of claim that follows the Code’s similar system.” The Court further held that the proof of claim was not “unfair” or “unconscionable” because “[t]he audience in a Chapter 13 bankruptcy case includes a trustee,” meaning its “considerably more likely that an effort to collect upon a stale claim in bankruptcy will be met with resistance, objection, and disallowance.” Thus, the Court held that Midland’s filing of a time-barred proof of claim does not violate the Act.

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