The Eleventh Circuit Court of Appeals decides affirmatively that filing a claim in Bankruptcy on a time-barred debt is a violation of the Fair Debt Collection Practices Act.
On July 10, 2014, the Eleventh Circuit Court of Appeals issued a decision in favor of Consumer Debtors ruling that it is a violation of the Fair Debt Collection Practices Act (FDCPA) to file a claim in a bankruptcy case on a debt that is time barred under the applicable state statute of limitation. To quote Judge Goldberg in the opinion, “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.”
The FDCPA is a federal consumer protection statute that imposes penalties upon third party debt collectors for deception, abusive or unfair acts in the collection of debts.
The act covers consumer debts only and can only be enforced against third party debt collectors, not the original creditor. Specific to the case decided here, the alleged violation was an effort by a third party debt collector to collect on a debt that was time barred under the applicable State statute of limitations for collecting on a time barred debt. The act makes it a violation to threaten suit or to file a suit on a time barred debt.
The Eleventh Circuit decided that the filing of a proof of claim by the debt collector was “deceptive, unfair, unconscionable, and misleading” and that pursuant to the bankruptcy code’s automatic allowance of claims that by filing this proof of claim the unenforceable time barred debt would be forced to be paid from the Chapter 13 Debtor’s wages. The court, therefore, concluded that this was a violation of the FDCPA and equated the action of filing the time barred proof of claim in bankruptcy to filing a lawsuit on a stale debt in state court. You can read the entire court decision here.