Eighth Circuit Says Pound Sand to 11th Circuit’s Crawford Decision — Holds that Filing Time-Barred Proofs of Claim in Bankruptcy Court Is Not Actionable Under the FDCPA

In Nelson v. Midland Credit Management, Inc., 2016 WL 3672073, at *2 (8th Cir. 2016), the Court of Appeals for the Eight Circuit disagreed with the 11th Circuit’s Crawford decision on the actionability under the FDCPA of filing time-barred proofs of claim.

Nelson urges this court to follow the Eleventh Circuit and extend to bankruptcy claims the rule against actual or threatened litigation on time-barred debts. See Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014); see also Johnson v. Midland Funding, LLC, 2016 WL 2996372, at *3 (11th Cir. May 24, 2016) (clarifying Crawford by holding that the Bankruptcy Code does not preempt the FDCPA). In Crawford, the Eleventh Circuit held that knowingly filing a time-barred proof of claim violated the FDCPA’s prohibitions against unfair, unconscionable, deceptive, or misleading conduct. 758 F.3d at 1261. The Crawford court reasoned that the same concerns underlying the rule against litigating or threatening to litigate time-barred debts—the debtor’s faded memory and lost records, possible ignorance of the statute of limitations, and expense to contest the stale debt—apply equally to a debt collector filing a claim on a stale debt. Id.  Crawford, however, ignores the differences between a bankruptcy claim and actual or threatened litigation. In Freyermuth, this court held that a defendant’s FDCPA liability turns on “whether an unsophisticated consumer would be harassed, misled or deceived by” the debt collector’s acts. Freyermuth, 248 F.3d at 771. The bankruptcy process protects against such harassment and deception. Unlike defendants facing a collection lawsuit, a bankruptcy debtor is aided by “trustees who owe fiduciary duties to all parties and have a statutory obligation to object to unenforceable claims.” In re Gatewood, 533 B.R. 905, 909 (8th Cir. B.A.P. 2015); see 11 U.S.C. §§ 704(a)(5), 1302 (b)(1) (outlining trustees’ duties, including objecting “to the allowance of any claim that is improper”).  Defending a lawsuit to recover a time-barred debt is more burdensome than objecting to a time-barred proof of claim. “[T]he Bankruptcy Code provides for a claims resolution process involving an objection and a hearing to assess the amount and validity of the claim … [that] is generally a more streamlined and less unnerving prospect for a debtor than facing a collection lawsuit.” In re Gatewood, 533 B.R. at 909. Because a proof of claim does not expand the pool of available funds in bankruptcy, debtors have less at stake than a collection defendant. Rather, an unsecured creditor likely shares only “pro rata in the distribution of the pool of available funds and see[s] the unpaid portion of its claim discharged.” Id.  These protections against harassment and deception satisfy the relevant concerns of the FDCPA. “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 v. Roundup Funding, LLC, 622 F.3d 93, 96 (2d Cir. 2010) (so stating while rejecting an FDCPA suit even where the proof of claim was inaccurate and inflated).  This court rejects extending the FDCPA to time-barred proofs of claim. An accurate and complete proof of claim on a time-barred debt is not false, deceptive, misleading, unfair, or unconscionable under the FDCPA. The district court properly dismissed for failure to state a claim.