Filing Stale Bankruptcy Claim Not Violation of Collection Law, Says U.S. Supreme Court

In a perplexing decision, a divided U.S. Supreme Court ruling endorses the practice of debt collectors who file proofs of claim in bankruptcy cases where the underlying debt is legally unenforceable due to expiration of the statute of limitations. Midland Funding, LLC v. Johnson, 581 U.S. ___ 517 (May 16, 2017).

The volume debt purchaser Midland Funding filed a proof of claim in a Chapter 13 bankruptcy case representing that the debtor Johnson, an Alabama resident, owed Midland a credit card debt $1879.71. The claim included a separate written statement indicating that the last time a charge appeared on Johnson's credit card was in May 2003, more than 10 years before Johnson filed for bankruptcy. The applicable 6-year statute of limitatoins under Alabama law to enforce collection of Midland's claim had expired.

Acting through his bankruptcy counsel, Johnson objected to the claim based on expiration of the statute of limitations. Midland did not resopnd to the objection and the bankruptcy court entered an order disallowing the claim. Johnson then filed suit against Midland for violating the Fair Debt Collection Practices Act ("FDCPA"), a federal statute 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. 15 U.S.C. 1692e, 1692f.

The Court's analysis focused on whether the creditor's inclusion of the written statement in its claim which indicated that the statute of limitations on collection of the debt had expired falls within the scope of the FDCPA's prohibited debt collection activities.

In a 5-3 marjority decision, the U.S. Supreme Court ruled in favor of Midland Funding finding that the word "enforceable" is absent from the applicable Bankruptcy Code sections defining the term "claim" and the allowance/disallowance of a "claim".

In this author's humble opinion the Supreme Court plainly got it wrong. A dissenting opinion authored by Justice Sotomayor and joined by two of her colleagues explains why the majority erred in adopted a narrow-minded approach.

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