Tag Archives: Proof of Claim

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.