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Filing Proof of Claim on Unextinguished Time-Barred Debt Not a Violation of FDCPA

Posted By USFN, Tuesday, October 11, 2016
Updated: Monday, October 3, 2016

October 11, 2016

by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

In a published opinion, the U.S. Court of Appeals for the Fourth Circuit has held that filing a proof of claim in a Chapter 13 bankruptcy based on a debt that is time-barred does not violate the Fair Debt Collection Practices Act (FDCPA) when the statute of limitations does not extinguish the debt. [Dubois v. Atlas Acquisitions LLC (In re Eric Dubois), No. 15-1945 (4th Cir. Aug. 25, 2016)].

Atlas purchased the defaulted debts of two debtors and filed proofs of claim in both Chapter 13 bankruptcy cases. Each debtor filed an adversary action against Atlas, alleging that because all of the debts were beyond Maryland’s statute of limitations when Atlas purchased them and filed its proofs of claim, Atlas violated 15 U.S.C. §§ 1692e (using “any false, deceptive, or misleading representation or means in connection with the collection of any debt”) and 1692f (using “unfair or unconscionable means to collect or attempt to collect any debt”). The debtors had not listed the Atlas debts in their bankruptcy schedules and did not give notice to Atlas of their bankruptcy filings. The bankruptcy court consolidated the cases and dismissed both complaints for failure to state a claim for which relief may be granted pursuant to Fed. R. Civ. P. 12(b)(6). The debtors appealed, and the Fourth Circuit permitted the appeal directly to the appellate court.

Appellate Review
The court first provided a brief overview of the purpose of bankruptcy and the reasons behind enactment of the FDCPA, setting up the justification for its holding. It then observed that “[f]ederal courts have consistently held that a debt collector violates the FDCPA by filing a lawsuit or threatening to file a lawsuit to collect a time-barred debt,” citing Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1259-60 (11th Cir. 2014) (collecting cases), cert. denied, 135 S. Ct. 1844 (2015). Dubois at 8. Surprisingly, however, the court did not reference the holding in Crawford, which opined that the filing of a proof of claim to collect stale debt in a Chapter 13 bankruptcy case violates 15 U.S.C. §§ 1692e and 1692f.

Addressing the competing arguments of Atlas and the debtors, the court first held that filing a proof of claim is debt collection activity. The “animating purpose” behind filing a proof of claim is to seek a share of the distribution of a debtor’s estate. Dubois at 10, citing Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011). “This fits squarely within the Supreme Court’s understanding of debt collection for purposes of the FDCPA.” Dubois at 10.

The court then considered whether a “claim” could include a time-barred debt. The court noted that “[t]he Bankruptcy Code defines the term ‘claim’ broadly to mean a ‘right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.’ 11 U.S.C. § 101(5)(A).” Id. at 14. The Code is designed to deal with all of the debtor’s legal obligations regardless how remote, providing the debtor with the “broadest possible remedy”. Id., citing H.R. Rep. No. 95–595, p. 309 (1977); S. Rep. No. 95–989, p. 22 (1978). Maryland’s statute of limitations does not extinguish the debt, rather it bars the remedy of a civil action to collect it — a remedy that may be revived if the debtor sufficiently acknowledges the debt’s existence. Id. at 15, citing Potterton v. Ryland Group, Inc., 424 A.2d 761, 764 (Md. 1981). Hence, because a time-barred debt still constitutes a right to payment under Maryland law, it is a “claim” for bankruptcy purposes. Dubois at 15.

In the court’s opinion “when a time-barred debt is not scheduled the optimal scenario is for a claim to be filed and for the Bankruptcy Code to operate as written.” The Code’s claim objection and disallowal procedures will stop a creditor from engaging in further collection activity, which is preferable to allowing the debt to continue to exist (if unscheduled and no proof of claim is filed), because “[t]his is detrimental to the debtor and undermines the bankruptcy system’s interest in ‘the collective treatment of all of a debtor’s creditors at one time.’ 1 Norton Bankr. L. & Prac. 3d § 3:9.” Id., at 19.

The court offered several other considerations in support of its decision, including that the Bankruptcy Rules require claims such as these to state the last transaction and charge-off dates, allowing for easy identification of time-barred debt. Therefore, “the reasons why it is ‘unfair’ and ‘misleading’ to sue on a time-barred debt are considerably diminished in the bankruptcy context, where the debtor has additional protections and potentially benefits from having the debt treated in the bankruptcy process.” Id. at 22.

Split of Authority among the Circuits
Servicer and attorney debt collectors should be aware that whether the filing of a proof of claim on time-barred debt violates the FDCPA is an area of developing law. A few other federal courts have held such action does not violate the FDCPA; e.g., Simmons v. Roundup Funding, LLP, 622 F.3d 93 (2d Cir. 2010) — while some have arrived at the opposite conclusion; e.g., Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014). Debt collectors must familiarize themselves with the law applicable to the jurisdiction in which they intend to file proofs of claim.

Editor’s Note: Recent USFN Reports have also addressed this subject. See the articles “FDCPA Trumps Bankruptcy Rules?” (Summer 2016 Ed.) and “Don’t Drink Expired milk and be Wary of Stale Claims” (Winter 2016 Ed.). Articles are archived in the Article Library at

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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