542 B.R. 833
Bankr. N.D. Ill.2016Background
- Debtor Darryl Glenn filed Chapter 13 on Aug. 25, 2014; bar date for claims was Feb. 17, 2015. Cavalry filed a proof of claim on Aug. 26, 2014 for $359.16, disclosing charge‑off and last activity dates (2002) in compliance with Fed. R. Bankr. P. 3001(c)(3).
- Debtor filed an adversary complaint alleging Cavalry’s proof of claim on a time‑barred debt violated the FDCPA (Counts I), constituted fraud on the court (Count II), and sought disallowance under Rule 3007 (Count III).
- Debtor separately objected to the claim; Cavalry did not defend the objection and the court sustained the objection on Aug. 31, 2015 (resolving Count III).
- Cavalry moved to dismiss, arguing (1) claim preclusion by confirmation/Adair, (2) FDCPA is precluded by the Bankruptcy Code, and (3) mere filing of a time‑barred proof of claim is not abusive/deceptive or a fraud on the court.
- The court heard full briefing and argument and concluded (a) Count III dismissed with prejudice (already resolved), and (b) Counts I and II dismissed without prejudice because the mere filing of a time‑barred proof of claim, standing alone, does not state an FDCPA or Rule 9011 fraud‑on‑the‑court claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing a proof of claim on a time‑barred debt violates the FDCPA | Filing a time‑barred claim is per se deceptive/abusive under §§1692e and 1692f | Filing is permitted by Bankruptcy Code and Rules; mere filing, especially with required disclosures, is not false or misleading | Not per se violative; dismissal without prejudice for Counts I–II because complaint alleges only filing and no additional deceptive conduct |
| Whether confirmation of plan (Adair) precludes FDCPA claim | Debtor contends confirmation does not bar FDCPA claims brought within bankruptcy | Cavalry argues Adair precludes collateral FDCPA attacks after confirmation | Adair inapplicable here because the adversary is within or contiguous to the bankruptcy case; dismissal not granted on this basis |
| Whether Bankruptcy Code precludes application of the FDCPA | Debtor: FDCPA applies to collection conduct even in bankruptcy | Cavalry: FDCPA is impliedly precluded or displaced by bankruptcy scheme | Court: No implied repeal; FDCPA and Bankruptcy Code co‑exist; court must analyze conduct case‑by‑case |
| Whether filing a proof of claim can be fraud on the court / sanctionable under Rule 9011 | Debtor: Filing a known time‑barred claim is fraud on the court | Cavalry: Filing a claim that complies with Bankruptcy Rules and discloses charge‑off dates is not fraudulent | Mere filing of a time‑barred claim is not per se fraud; fraud/9011 sanction possible only with additional wrongful facts; Count II dismissed without prejudice |
Key Cases Cited
- Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000) (issue preclusion barred collateral FDCPA attack framed as contest to claim allowance)
- Phillips v. Asset Acceptance, LLC, 736 F.3d 1076 (7th Cir. 2013) (suit on time‑barred debt violates FDCPA per se)
- McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014) (not automatically improper to seek repayment of time‑barred debt; context matters)
- Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) (Bankruptcy Code does not impliedly repeal FDCPA; statutes co‑exist)
- Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014) (filing time‑barred proof of claim can be unfair, deceptive, or misleading under FDCPA)
- Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010) (FDCPA need not protect debtors already protected by bankruptcy process)
- Butner v. United States, 440 U.S. 48 (1979) (property rights in bankruptcy are created by state law)