Monthly Archives: July 2014

Filing a Stale Proof of Claim in a Bankruptcy Case May be Considered a Violation of the FDCPA

By Ryan C. Wood

What is considered a stale proof of claim? A stale proof of claim is one where a creditor files a proof of claim with the bankruptcy court and the underlying debt is barred from collection because it violates the statue of limitations. The statue of limitations is a law that provides a maximum period of time for someone to take action on a certain claim, whether it is collecting on a debt or filing a lawsuit against someone for certain violations. There is a maximum period of time set up because the longer the wait time, the less accurate the information will be. Evidence supporting the claim may be lost or people’s memories of the event may diminish. There is also the saying, “if you snooze, you lose.” If you sleep on your rights, or wait to long to claim them, you shouldn’t be surprised if you lost them. The statutes of limitations for different actions vary depending on the jurisdiction. You should familiarize yourself with your jurisdiction’s statute of limitation laws. The statute of limitations for a collection activity or breach of contract in California is 4 years. So if you do not collect on a debt before the 4 years is up you are barred from trying to collect on it later.

In a recent 11th Circuit Court of Appeals case, Crawford v. LVNV Funding, LLC, et al., No. 13-12389 (appealed from the US District Court for Middle District of Alabama, July 2014) the court ruled that LVNV violated the Fair Debt Collection Practices Act (“FDCPA”) by filing stale proof of claims in a Chapter 13 case. In this case, Stanley Crawford owed money to a furniture company who then sold the debt to LVNV. The last transaction occurred on October 26, 2001. Alabama’s statute of limitations is 3 years so the debt is time barred by October 2004. Mr. Crawford filed for Chapter 13 bankruptcy protection in February 2008. LVNV filed a proof of claim in the case even though the debt was deemed uncollectible. Mr. Crawford then filed an adversary proceeding against LVNV pursuant to Bankruptcy Rule 3007(b). Mr. Crawford claimed that LVNV routinely filed stale proof of claims in bankruptcy court and that the filing of these stale claims is a violation of the FDCPA. The bankruptcy judge in the case dismissed the adversary and the district court judge affirmed. Mr. Crawford then appealed this case to the appellate court where the judge ruled in Mr. Crawford’s favor.

The FDCPA was enacted to protect consumer’s rights. The FDCPA protects the consumers against debt collectors. “A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. §1692e. “A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Id. §1692f. The court looked at the facts in the case to determine if LVNV’s filing of a claim they know to be time-barred in bankruptcy court would be considered unconscionable, deceiving, or misleading towards the least-sophisticated consumer. See Jeter v. Credit Bureau, Inc., 760 F.2d 1168 (11th Cir. 1985). If LVNV tried to pursue a claim in state court, their case would have been dismissed because it was time-barred and those actions would violate the FDCPA. The judge in this case deemed that to be the case in bankruptcy court as well. If a proof of claim is not objected to in bankruptcy court, the claim is deemed valid and will be paid according to the plan. LVNV tried to slip the claim in the case and they were paid by the Chapter 13 trustee. A least-sophisticated consumer would not know to look and see if the claim was time barred. This was what LVNV was banking on. The court determined that LVNV’s actions a violation of the FDCPA.

Chapter 13 bankruptcy cases are complicated and it is advised you seek the advice of an experienced bankruptcy attorney to file your bankruptcy case. A bankruptcy lawyer is also the best person equipped to protect your rights and ensure the proof of claims filed with the court are not time-barred and stale.

Tuition Credits are Not a Student Loan and Dischargeable When Filing Bankruptcy

By Ryan C. Wood

You have probably heard over and over that student loans are not dischargeable in bankruptcy unless you can prove that repaying the student loans constitutes an undue hardship for you. That is still the case. 11 U.S.C. 523(8) excepts from discharge (A)(i) an education benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an education benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in §221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual. This means if your student loans fall into any of the above categories the debt is not dischargeable in your bankruptcy case and you will still owe the funds after your case is closed unless you can prove undue hardship by filing an adversary proceeding.

Although the statute above may seem daunting there may be hope. In a recent case, In re: Christoff, Bankruptcy Case No. 13-10808DM, Northern District of California (2014), the court held that the debts held by Ms. Christoff were never received by her and therefore are not excepted from discharge by 11 U.S.C. §523(a)(8) and were discharged in her Chapter 7 bankruptcy case. In this case, Ms. Christoff attended the Institute of Imaginal Studies dba Meridian University (“Meridian”). She was awarded $6,000 in financial aid to pay for some of her tuition. She signed a promissory note. She did not actually receive any funds from Meridian though. Instead, what she received was a tuition credit. The terms of the note required her to pay back the funds at $350 per month after she finishes her coursework or she withdraws from Meridian along with 9% interest to be compounded monthly. She received another $5,000 in tuition credit the following year after signing a promissory note with the same terms. She withdrew from Meridian after completing all her coursework and clinical hours but before she completed her dissertation. She filed for Chapter 7 bankruptcy protection in August 2013 and Meridian filed an adversary proceeding to determine that the amount owed to Meridian was nondischargeable under 11 U.S.C. §523(a)(8) as a student loan.

The court in this case thoroughly examined student loan cases throughout the Ninth Circuit and other circuits. What is important to bankruptcy lawyers is what differentiates this current case with all other student loan cases is the fact that Ms. Christoff never received the funds from Meridian nor did Meridian receive funds from any other source. Ms. Christoff received a “credit” towards her education to be paid back at a later time. Both parties agreed that Meridian was not a governmental unit so they did not fit into §523(8)(A)(i). They also agreed that Meridian did not fit into §523(8)(B). Therefore the only avenue to except the debt from discharge is §523(8)(A)(ii). The entire case hinged on whether the funds were received as an education benefit, scholarship or stipend. The court determined that since there were no funds received in Ms. Christoff’s case, the debt did not fit into §523(8)(A)(ii) either and therefore the debt was dischargeable in her bankruptcy case.

What is interesting to note in this case as well is the fact that the court looked to one case, In re Oliver, 499 B.R. 617 (Bankr. S.D. Ind. 2013) where a university withheld a student’s transcript because she did not pay the tuition or related fees. The Oliver court indicated that to be excepted from discharge, the debt must still be a loan. Therefore if you did not borrow money to pay the tuition (i.e: you pay for it yourself without borrowing money from a governmental entity, private student loan company, from the school itself, or from any other third party) the debt does not fit into any of the above exceptions to discharge and is therefore dischargeable in a bankruptcy. This court completely agreed with the Oliver court in their analysis and conclusion. Meridian’s bankruptcy attorney appealed this case on the same day the decision came out so we may or may not have the same result later on. We will follow continue to monitor this case and will report on the outcome of the appeal.