In Crawford v. LVNV Funding, LLC, — F.3d —-, 2014 WL 3361226 (11th Cir. 2014), when the 11th Circuit sets it put this way, you pretty much know how its coming down.
A deluge has 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. This appeal considers whether a proof of claim to collect a stale debt in Chapter 13 bankruptcy violates the Fair Debt Collection Practices Act (“FDCPA” or “Act”). 15 U.S.C. §§ 1692–1692p (2006). We answer this question affirmatively. . . . The reason behind LVNV’s practice of filing time-barred proofs of claim in bankruptcy court is simple. Absent an objection from either the Chapter 13 debtor or the trustee, the time-barred claim is automatically allowed against the debtor pursuant to 11 U.S.C. § 502(a)-(b) and Bankruptcy Rule 3001(f). As a result, the debtor must then pay the debt from his future wages as part of the Chapter 13 repayment plan, notwithstanding that the debt is time-barred and unenforceable in court. That is what happened in this case. LVNV filed the time-barred proof of claim in May of 2008, shortly after debtor Crawford petitioned for Chapter 13 protection. But neither the bankruptcy trustee nor Crawford objected to the claim during the bankruptcy proceeding; instead, the trustee actually paid monies from the Chapter 13 estate to LVNV (or its surrogates) for the time-barred debt.FN5 It wasn’t until four years later, in May 2012, that debtor Crawford—with the assistance of counsel—objected to LVNV’s claim as unenforceable.
The Court of Appeals found that the debt collector could not do in bankruptcy court what it could not do in state court, and rejected the contention that filing proofs of claim in bankruptcy court was not “collection activity”.
These observations reflect the purpose behind statutes of limitations. Such limitations periods “represent a pervasive legislative judgment that it is unjust to fail to put the adversary on notice to defend within a specified period of time.” United States v. Kubrick, 444 U.S. 111, 117, 100 S.Ct. 352, 356–57 (1979). That is so because “the right to be free of stale claims in time comes to prevail over the right to prosecute them.” Id. at 117, 100 S.Ct. at 357 (quoting R.R. Telegraphers v. Ry. Express Agency, 321 U.S. 342, 349, 64 S.Ct. 582, 586 (1944)) (quotation marks omitted). Statutes of limitations “protect defendants and the courts from having to deal with cases in which the search for truth may be seriously impaired by the loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or otherwise.” Id. The same is true in the bankruptcy context. In bankruptcy, the limitations period provides a bright line for debt collectors and consumer debtors, signifying a time when the debtor’s right to be free of stale claims comes to prevail over a creditor’s right to legally enforce the debt. A Chapter 13 debtor’s memory of a stale debt may have faded and personal records documenting the debt may have vanished, making it difficult for a consumer debtor to defend against the time-barred claim. Similar to the filing of a stale lawsuit, a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt. The “least sophisticated” Chapter 13 debtor may be unaware that a claim is time barred and unenforceable and thus fail to object to such a claim. Given the Bankruptcy Code’s automatic allowance provision, the otherwise unenforceable time-barred debt will be paid from the debtor’s future wages as part of his Chapter 13 repayment plan. Such a distribution of funds to debt collectors with time-barred claims then necessarily reduces the payments to other legitimate creditors with enforceable claims. Furthermore, filing objections to time-barred claims consumes energy and resources in a debtor’s bankruptcy case, just as filing a limitations defense does in state court. For all of these reasons, under the “least-sophisticated consumer standard” in our binding precedent, LVNV’s filing of a time-barred proof of claim against Crawford in bankruptcy was “unfair,” “unconscionable,” “deceptive,” and “misleading” within the broad scope of § 1692e and § 1692f Any contrary arguments mentioned in the briefs do not alter this conclusion. For example, we disagree with the contention that LVNV’s proof of claim was not a “collection activity” aimed at Crawford and, therefore, not “the sort of debt-collection activity that the FDCPA regulates.” As noted earlier, the broad prohibitions of § 1692e apply to a debt collector’s “false, deceptive, or misleading representation or means ” used “ in connection with the collection of any debt.” 15 U.S.C. § 1692e (emphases added). The broad prohibitions of § 1692f apply to a debt collector’s use of “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f (emphasis added). The FDCPA does not define the terms “collection of debt” or “to collect a debt” in §§ 1692e or 1692f. However, in interpreting “to collect a debt” as used in § 1692(a)(6), the Supreme Court has turned to the dictionary’s definition: “To collect a debt or claim is to obtain payment or liquidation of it, either by personal solicitation or legal proceedings.” Heintz v. Jenkins, 514 U.S. 291, 294, 115 S.Ct. 1489, 1491 (1995) (quoting Black’s Law Dictionary 263 (6th ed.1990)). Applying these definitions here, we conclude that LVNV’s filing of the proof of claim fell well within the ambit of a “representation” or “means” used in “connection with the collection of any debt.” It was an effort “to obtain payment” of Crawford’s debt “by legal proceeding.” In fact, payments to LVNV were made from Crawford’s wages as a result of LVNV’s claim. And, it was Crawford—not the trustee—who ultimately objected to defendants’ claim as time-barred. Our conclusion that §§ 1692e and 1692f apply to LVNV’s proof of claim is consistent with the FDCPA’s definition of a debt-collector as “any person who … regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6) (emphasis added). LVNV also argues that considering the filing of a proof of claim as a “means” used “in connection with the collection of debt” for purposes §§ 1692e and 1692f of the FDCPA would be at odds with the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362(a)(6). We disagree. The automatic stay prohibits debt-collection activity outside the bankruptcy proceeding, such as lawsuits in state court. See Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348, 354 (5th Cir.2008) (explaining that the automatic stay “does not determine a creditor’s claim but merely suspends an action to collect the claim outside the procedural mechanisms of the Bankruptcy Code”). It does not prohibit the filing of a proof of claim to collect a debt within the bankruptcy process. Filing a proof of claim is the first step in collecting a debt in bankruptcy and is, at the very least, an “indirect” means of collecting a debt. See 15 U.S.C. §§ 1692a(6), 1692e, and 1692f.