Bankruptcy law is provided for in the U.S. Constitution under Article I, Section 8, Clause 4 and has existed in some form or another since the Bankruptcy Act of 1800. See Cent. Va. Cmty. College v. Katz, 546 U.S. 356, 370 (2006). Its primary purpose has long been to “relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.” Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). In the context of a Chapter 13 case, it furthers the fundamental purposes of the Bankruptcy Code system to adjudicate and conciliate all claims with respect to a debtor in her bankruptcy case. Universal Am. Mort. Co. v. Bateman (In re Bateman), 331 F.3d 821, 828, n.6 (11th Cir 2003).
The Bankruptcy Code provides an incredibly broad definition of “claim,” which includes a “right to payment whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5). The broad definition of “claim” is intentionally broad. 11 U.S.C. § 101(5) and 1978 Legislative History (“By this broadest possible definition . . . , the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.” H.R. Rep. No. 595, 95th Cong., 1st Sess. 309 (1977), S. Rep. No. 989, 95th Cong., 2d Sess. 21–22 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787 at 5807–08 and 6266).
The Fair Debt Collection Practices Act (FDCPA) was enacted in 1977 due to “abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors [that] contribute to the number of personal bankruptcies . . . .” 15 U.S.C. § 1692(a). Congress made its purpose in enacting the FDCPA explicit: “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” Owen v. I.C. Sys., Inc., 629 F.3d 1263, 1270 (11th Cir. 2011) (quoting 15 U.S.C. § 1692(e)).
For many years both the Bankruptcy Code and the FDCPA existed peacefully in separate jurisdictions. Attempts to inject FDCPA claims into bankruptcy cases were rare, and when attempted were often rejected by the bankruptcy courts themselves. Back in 2001, the Ninth Circuit Court of Appeals held that an FDCPA claim based upon an alleged violation of section 524 of the Bankruptcy Code was precluded by the Code itself because “while the FDCPA’s purpose is to avoid bankruptcy, if bankruptcy nevertheless occurs, the debtor’s protection and remedy remain under the Bankruptcy Code.” Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2001). Several years later, the Bankruptcy Appellate Panel for Ninth Circuit specifically held that the Bankruptcy Code precludes application of the FDCPA in the bankruptcy claims process. B-Real, LLC v. Chaussee (In re Chaussee), 399 B.R. 225 (9th Cir. B.A.P. 2008). Specifically, the panel found that “in our opinion, the debt validation provisions required by FDCPA clearly conflict with the claims processing procedures contemplated by the Code and Rules. Simply put, we find that the provisions of both statutes cannot compatibly operate.” The Second Circuit expanded on this reasoning in Simmons v. Roundup Funding, LLC, 622 F.3d 93, 96 (2d Cir. 2010) when it held that “the 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.”
Simmons and Walls were rather broad in their preclusion of all FDCPA claims in bankruptcy cases, whereas other circuits began to take a more analytical approach to whether there was a conflict between the portion of the Bankruptcy Code at issue and the FDCPA provision at issue. See, for example, Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) and Simon v. FIA Card Servs, N.A. 732 F.3d 259 (3d Cir. 2013). Although the Third and Seventh Circuits would permit FDCPA claims under certain situations, one thing remained constant: no court would permit an FDCPA claim based upon the filing of a proof of claim. See also Owens v. LVNV Funding, LLC, 832 F.3d 726 (7th Cir. 2016); DuBois v. Atlas Acquisitions, LLC, 834 F.3d 522 (4th Cir. 2016); Nelson v. Midland Credit Mgmt. Inc., 828 F.3d 749 (8th Cir. 2016).
That all changed with Crawford v. LVNV Funding, LLC, 758 F.3d. 1254 (11th Cir. 2014). According to the Eleventh Circuit, “A deluge [had] 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.” Unlike cases before it, Crawford likened the filing of a proof of claim to the filing of a lawsuit. Crawford reasoned that because the filing of a lawsuit on a debt that was beyond the statute of limitations violated the FDCPA, so too would the filing of a proof of claim on that same debt.
After Crawford, a new deluge swept through U.S. bankruptcy courts, but the new deluge was that of debtor’s attorneys filing FDCPA complaints against debt collectors for filing proofs of claims on debts that were subject to a statute-of-limitations defense. The Crawford case itself did not make it to the U.S. Supreme Court and, ironically, was ultimately dismissed on summary judgment because Crawford’s own FDCPA claim was barred by the one-year statute of limitations set forth in the FDCPA. One of the cases in the new deluge was Johnson v. Midland Funding, LLC, 823 F.3d 1334, 1336 (11th Cir. 2016), another case from the Eleventh Circuit. Like Crawford before it, the bankruptcy court and district court held that the filing of the proof of claim did not violate the FDCPA, and the Eleventh Circuit reversed. However, unlike Crawford, Midland specifically addressed the argument whether there was an irreconcilable conflict between the FDCPA and the Bankruptcy Code’s claim-filing process.
Writing for a 5–3 majority, Justice Breyer closed Pandora’s box and ended the new deluge almost three years after it began. Taking a practical approach, Justice Breyer examined the purposes of the FDCPA and what it intends to prevent: “false, deceptive, or misleading” statements and “unfair or unconscionable” collection practices. Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1410–11 (2017). The court reasoned that a proof of claim cannot be false, deceptive, or misleading if, on its face, it indicates that the relevant statute of limitations has run. Given that a claim under the Bankruptcy Code is a “right to payment” which is determined by state law, the expiration of the statute of limitations did not extinguish the debt—the creditor still has a right to payment. The court rejected the debtor’s attempt to read the word “enforceable” into the definition of “claim,” noting that the word does not appear anywhere in the statutory definition. Rather, consistent with the text of the statute itself, the opinion notes that the definition of “claim” is extremely broad and even includes disputed claims.
Moving on to the unfair or unconscionable claims, the majority examined the purpose of a bankruptcy proceeding filed by the debtor and distinguished it from a collection lawsuit filed by a creditor, reasoning that the “features of a Chapter 13 bankruptcy proceeding make it considerably more likely that an effort to collect upon a stale claim in bankruptcy will be met with resistance, objection, and disallowance.” The court also rejected Johnson’s attempt to transfer the statutory burdens set forth in the claims process, noting that untimeliness is an affirmative defense. Ultimately, the majority determined that the differing purposes of the Bankruptcy Code and the FDCPA were at odds here, and applying the FDCPA would upset the “delicate balance” between the two. In the end, because Chapter 13 trustees and debtors have always had the burden to examine claims for potential defenses, the Supreme Court was not willing to try to craft a new exception to those well-established rules.
Unlike the majority, Justice Sotomayor’s dissent likened the filing of a proof of claim to that of filing a lawsuit. After spending a considerable amount of time discussing the debt buying process in general, the dissent also disagreed with the majority’s holding that the Chapter 13 trustee and the process itself will provide adequate protection to the debtor. Given the lengthy introduction, it appears that the dissent’s issue lies not only with the filing of proofs of claims for the older debts, but also with their collection at all. This, too, represents a fundamental disagreement between the two opinions, given that the majority views the filing of the proof of claim as a part of the process to discharge debts, whereas the dissent views it as an end run around a forbidden practice.
In the end, the majority held that “filing a proof of claim that is obviously time barred is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the FDCPA.” This opinion restores order among the circuits and requires the Eleventh Circuit to fall in line with the Second, Third, Fourth, Seventh, Eighth, and Ninth Circuits when it comes to the application of the FDCPA to proofs of claim. One thing that the majority did not do, however, was issue a broad holding that the FDCPA simply does not apply to bankruptcy cases like the Ninth Circuit in Walls or the Second Circuit in Simmons. On the other hand, the majority also did not necessarily endorse the irreconcilable-conflict analysis like the Seventh Circuit in Randolph or the Third Circuit in Simon. Nevertheless, the Midland opinion is obviously a welcome respite from the deluge for debt buyers and debt collectors.