In two chapter 13 bankruptcy cases that were consolidated on appeal the debtors claimed that a creditor violated the Fair Debt Collection Practices Act (FDCPA) by filing a bankruptcy proof of claim for claims barred by a statute of limitations. The district court found for the creditors on the basis that there was an implied repeal of a portion of the FDCPA by the Bankruptcy Code. The debtors appealed to the 11th Circuit.
In one case the last transaction on the debtor’s account was over 10 years before the bankruptcy filing. In the other case there had been no activity for over 6 years before the filing. In both cases that meant that collection of the debt was barred by a statute of limitations.
Under the FDCPA a “debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. … This includes attempting to collect a debt that is not ‘expressly authorized by the agreement creating the debt or permitted by law.'”
In a prior case the 11th Circuit applied a “least-sophisticated consumer” standard to evaluate whether conduct was deceptive. It then held that it was a violation of the FDCPA to file a proof of claim for a time-barred debt because that creates a misleading impression that the debt can be legally enforced. An unsophisticated debtor may be unaware that the claim is unenforceable, and thus may fail to object to the claim.
On the other hand, under the Bankruptcy Code a “creditor… may file a proof of claim” – which does not necessarily mean that the creditor has a right to have its claim paid. “[H]aving a claim is not the same as being entitled to a remedy.” Under normal circumstances it would be up to the bankruptcy trustee to examine the claims and file an objection to allowance of any improper claim. In turn the bankruptcy court would determine whether the claim is unenforceable.
In the district court’s view this creates an “irreconcilable conflict” since the Bankruptcy Code permits creditors to file time-barred proofs of claim, while the FDCPA prohibits debt collectors from doing so. Accordingly, it found that the later enacted Bankruptcy Code repealed the earlier-enacted FDCPA.
However, the 11th Circuit took issue with this analysis. Repeals by implication are not favored and require that the legislative intent to repeal be “clear and manifest.” If there is no express legislative intention to repeal and there is a way for the two statutes to coexist, then each must be found effective. Implied repeal is reserved for cases where there is a “positive repugnancy” between the statutes.
In the 11th Circuit’s view the FDCPA and the Bankruptcy Code are not in irreconcilable conflict. Rather each has its own scope and purpose. The Bankruptcy Code applies to all creditors, while the FDCPA applies only to the subclass of debt collectors. The Bankruptcy Code establishes a right to file a claim, while the FDCPA establishes the consequences to a debt collector of filing such a claim.
The court rejected the creditors’ claim that a holding that filing a time-barred claim is an FDCPA violation “effectively forces a debt collector to ‘surrender  its right to file a proof of claim.'” The court noted that there was nothing to stop the creditor from filing its claim just because afterwards it may be subject to sanctions.
In reaching its conclusion that the Bankruptcy Code and the FDCPA can coexist the court noted that (1) neither statute contains any provisions regarding interaction between the two statutes, and (2) there was no “clear and manifest intent” of Congress to repeal the FDCPA when it subsequently enacted the Bankruptcy Code.
Accordingly the court held that while a creditor may file a proof of claim under the Bankruptcy Code, a “debt collector” may be liable under the FDCPA if it files a proof of claim for a debt that it knows is time-barred.
This is another example of why one should use caution in collecting debts from individuals. Compliance with the FDCPA can present challenges and there are consequences if one fails to meet those challenges.
Vicki R Harding, Esq.