Another Lower Court Nixes an FDCPA Claim Based on a Time-Barred Debt

Sometime around midyear, the Seventh Circuit will rule in Owens v. LVNV Funding LLC, possibly setting up a conflict of circuits, thereby allowing the Supreme Court to decide whether filing a proof of claim based on a time-barred debt can ever be in violation of the federal Fair Debt Collection Practices Act, or FDCPA.

In Owens, a district judge in Indianapolis said the FDCPA was intended to eliminate “abusive debt collection practices” and protect “unsophisticated consumers.” She dismissed the suits, finding nothing false or deceptive in the claims as filed, because they laid out facts showing that the debt was time barred.

In Owens, the last brief will be filed in late February. Likely as not, either Judges Richard Posner or Frank Easterbrook will author the opinion, because they tend to pen many of the Seventh Circuit’s important bankruptcy decisions.

The Seventh Circuit previously addressed the FDCPA. In Randolph v. IMBS Inc., the appeals court held in 2004 that the FDCPA and the Bankruptcy Code only “overlap” and lack any “irreconcilable conflict,” enabling debt collectors to comply with both simultaneously. Randolph held that adoption of the Code did not impliedly repeal the FDCPA.

In Phillips v. Asset Acceptance LLC, the Seventh Circuit held in 2013 that filing suit (distinguished from filing a proof of claim) based on a time-barred debt is in violation of the FDCPA.

Along comes Bankruptcy Judge Timothy Barnes from Chicago, who confronted the prototypical case presented by an adversary proceeding in bankruptcy court alleging an FDCPA violation simply based on the filing of a claim asserting a stale debt. Judge Barnes used the case to issue an opinion on Jan. 5 suggesting how the Seventh Circuit should interpret its own prior decisions and decide Owens.

Judge Barnes acknowledged that “an industry has sprung up around the acquisition of and realization upon time-barred claims.” He nonetheless held that unadorned suits based on stale claims must be dismissed, although he left the door open a crack for complaints based on more egregious facts. He believes that neither Randolph nor Phillips by themselves dictate the result.

Feeling compelled to construe the FDCPA, Judge Barnes found nothing false, misleading, deceptive, unfair or unconscionable in filing a claim on a stale debt that complies with Bankruptcy Rule 3001(c)(3). Although commencing a lawsuit on a stale claim would violate the FDCPA, filing a claim would not, he said, given the Bankruptcy Code’s lack of a bar against asserting a claim based on a stale debt.

Judge Barnes dismissed without prejudice to filing an amended complaint if the plaintiff can base the suit on something more than the filing of a stale claim. His opinion could be read to mean that there may be an FDCPA violation if, for instance, a proof of claim does not contain the information required by Rule 3001(c)(3).