Supreme Court to Decide Whether the Fair Debt Collection Practices Act Imposes Liability on a Creditor Who Files a Proof of Claim to Collect a Time-Barred Debt

timemoneyJust a few weeks ago, we wrote that a major question begging for Supreme Court consideration is whether a creditor can be held liable under the Fair Debt Collection Practices Act (“FDCPA”) when it files a proof of claim in a bankruptcy case to collect a time-barred debt.  In May 2016 the Eleventh Circuit said yes; in July 2016 the Eighth Circuit said no (as long as the proof of claim is accurate and complete).

At the request of both the petitioning creditor and the responding debtor, the Supreme Court has agreed to review the Eleventh Circuit’s decision in Johnson v. Midland Funding, LLC, 823 F.3d 1334 (11th Cir. May 24, 2016).  The questions to be examined by the Court are as follows:

(1)  Whether the filing of an accurate proof of claim for an unextinguished time-barred debt in a bankruptcy proceeding violates the Fair Debt Collections Practices Act.

(2)  Whether the Bankruptcy Code, which governs the filing of proofs of claim in bankruptcy, precludes the application of the Fair Debt Collection Practices Act to the filing of an accurate proof of claim for an unextinguished time-barred debt.

The stakes are high, particularly for collection companies and claims purchasers (like Midland Funding) that are most at risk for filing proofs of claims relating to time-barred debts.  This will be a very hotly contested case with many amici curiae briefs likely to be filed.  We hopefully will have a resolution to these issues by next summer.

Does the FDCPA Apply When a Creditor Files a Proof of Claim to Collect a Time-Barred Debt?

The U.S. Supreme Court has accepted a number of bankruptcy cases over the last few years, and another issue seems ripe for the big stage:  Can a creditor be held liable under the Fair Debt Collection Practices Act (“FDCPA”) when it files a proof of claim in a bankruptcy case to collect a time-barred debt?  On July 11, 2016, the Eighth Circuit added to the existing circuit split regarding application of the FDCPA in bankruptcy cases.  See Nelson v. Midland Credit Mgmt., Inc., ___ F.3d ___ (8th Cir. 2016).Continue reading

Unmarried Same-Sex Couples Are Not Eligible to File Joint Bankruptcy Petitions Even If They Are Registered Domestic Partners

Section 302 of the Bankruptcy Code provides that a debtor “and such individual’s spouse” may file a joint bankruptcy case. Courts have held that persons who cohabitate, but are not legally married, are not eligible to file a joint petition. See In re Malone, 50 B.R. 2 (Bankr. E.D. Mich. 1985) (opposite-sex couple); Bone v. Allen (In re Allen), 186 B.R. 769 (Bankr. N.D. Ga. 1995) (same-sex couple); In re Lucero, 408 B.R. 348 (Bankr. C.D. Cal. 2009) (opposite-sex couple). On the other hand, legally married couples – including same-sex couples – may file joint petitions. See In re Somers, 448 B.R. 677 (Bankr. S.D.N.Y. 2011) (same-sex couple legally married in Vermont).Continue reading

Supreme Court: “Actual Fraud” Exception to Discharge Is Not Limited to Cases in Which the Debtor Has Made a False Representation to the Creditor

A principal purpose of the Bankruptcy Code is to provide a fresh start to an “honest but unfortunate debtor.”  Under certain circumstances, a creditor may ask the bankruptcy court to determine that a particular debt is nondischargeable.  If the court agrees, the debtor will continue to owe that debt even after the case is over and all other debts are discharged.

Section 523(a)(2)(A) of the Bankruptcy Code provides that an individual debtor’s discharge does not cover any debt “for money, property [or] services . . . to the extent obtained by . . . false pretenses, a false representation, or actual fraud.”  Over the years, courts have disagreed about the meaning of “actual fraud.”  Continue reading

Don’t Lose Your Shirt

Recently there have been a series of high profile retailer bankruptcies – Radio Shack, Haggen Stores and Quicksilver. These cases shine a light on a very difficult problem for commercial property owners. This problem is exacerbated for single-tenant net-leased investments that rely exclusively on the income from one tenant and have become a virtual safe-haven for many investors, especially 1031 exchanges. So what is an owner to do when his formerly blue chip tenant files for Chapter 11?Continue reading

A Bankruptcy Horror Story

In the case of State Bank v. Covey (In re Duckworth), an opinion was issued in late 2014 by the United States Court of Appeals for the Seventh Circuit which voided a $1.1 million security interest because of just one small mistake.

Continue reading