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Time-Barred Proof of Claims Violate FDCPA

By: Garam Choe

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in Crawford v. LVNV Funding, LLC, the Eleventh Circuit held that the creditor violated the Fair Debt Collection Practices Act (“FDCPA”) by filing a proof of claim to collect a debt that was unenforceable because the statute of limitations had expired.[i] In Crawford, a third-party creditor acquired a debt owed by the debtor from a furniture company.[ii] The last transaction on the account occurred in October 2001.[iii] Accordingly, under Alabama’s three-year statute of limitations, the debt became unenforceable in October 2004.[iv] On February 2, 2008, the debtor filed bankruptcy under chapter 13 of the Bankruptcy Code.[v] The third-party creditor then filed a proof of claim for the time-barred debt during the debtor’s bankruptcy proceeding.[vi] Neither the debtor nor the bankruptcy trustee objected the claim.[vii] Rather, the trustee distributed the pro rata portion of the claim from the plan payments to the creditor.[viii] In May 2012, the debtor commenced an adversary proceeding against the third-party creditor alleging that the third-party creditor filed a proof of claim for a time-barred debt in violation of the FDCPA.[ix] The bankruptcy court dismissed the adversary proceeding in its entirety, and district court affirmed.[x] In affirming the bankruptcy court’s dismissal, the district court found that the third-party creditor did not attempt to collect a debt from the debtor because filing a proof of claim is “merely ‘a request to participate in the distribution of the bankruptcy estate under court control.’”[xi] Furthermore, the district court found that, even if the third-party creditor was attempting to collect the debt, the third-party creditor did not engage in abusive practices.[xii] On appeal, the Eleventh Circuit reversed, holding that the third-party creditor violated the FDCPA by filing a stale claim in the bankruptcy court.[xiii]