A divided U.S. Supreme Court ruled that debt collectors can use bankruptcy proceedings to try to collect liabilities that are so old the statute of limitations has expired, Bloomberg reported yesterday. Voting 5-3 in Midland Funding, LLC v. Johnson, 16-348, the court said that companies don’t violate the Fair Debt Collection Practices Act when they file bankruptcy claims on that type of years-old debt. Justice Stephen Breyer joined the court’s conservative wing in the majority. Critics have accused debt collectors of violating the law by filing tens of thousands of outdated claims with bankruptcy courts in the hope that some debtors won’t object. “The result of the decision appears to give creditors a free pass to file stale claims without fearing FDCPA liability,” said Andrew Muller, a partner with Stinson Leonard Street LLP. “The flip side is that trustees and debtors’ lawyers may be under increased pressure to more closely review claims to determine whether the claims are subject to a statute of limitations defense.” The ruling is a victory for Encore Capital Group Inc.’s Midland Funding in an Alabama case that started with an effort to collect a $1,900 credit card debt. The debtor, Aleida Johnson, sued Midland after a bankruptcy judge threw out Midland’s claim. Midland argued that federal bankruptcy law lets creditors file claims in those proceedings even if the statute of limitations wouldn’t allow a lawsuit.
Click here to read Bill Rochelle’s analysis on yesterday’s Midland Funding decision.
Experts to Discuss Supreme Court’s Ruling in Midland Funding, LLC v. Johnson and Its Implications on Debt-Collection Practices
ABI will be holding a media webinar on Wednesday, May 17, at 3 p.m. ET discussing the Supreme Court’s ruling in Midland Funding, LLC v. Johnson. ABI Editor-at-Large Bill Rochelle will be moderating the discussion. There are limited slots available for ABI members to listen and participate in the webinar. Click here to register.
