Memorandum of Decision
In this adversary proceeding, a Chapter 13 debtor alleges that the defendants violated the Fair Debt Collection Practices Act (FDCPA) by filing a claim subject to a
Jurisdiction
Under 28 U.S.C. § 1334(a), the federal district courts have “original and exclusive jurisdiction” of all cases under the Bankruptcy Code (Title 11, U.S.C.). The district courts may refer these cases to the bankruptcy judges for their districts under 28 U.S.C. § 157(a), and through its Internal Operating Procedure 15(a) the District Court for the Northern District of Illinois has made such a reference. After a case is referred to a bankruptcy judge, 28 U.S.C. § 157(b)(1) authorizes the judge to “hear and determine” and “enter appropriate orders and judgments” only in “core proceedings arising under title 11, or arising in a case under title 11.” The Seventh Circuit has held that “[a] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.” Barnett v. Stern,
Neither basis for core status exists here. A cause of action under the FDCPA “arises under” Title 15, not under Title 11. See 15 U.S.C. § 1692. And FDCPA actions are not proceedings that by their nature can arise only in the context of a bankruptcy case. They are typically filed as independent actions in district courts. See, e.g., Buckley v. Bass & Assoc.,
When a proceeding is not subject to a bankruptcy judge’s final judgment, § 157(c)(1) provides that the bankruptcy judge may still hear the proceeding and recommend fact findings and legal conclusions to the district court for its entry of judgment but only if the proceeding is “related to” the referred bankruptcy case. A proceeding is “related to” the bankruptcy case if .it affects the “amount of property available for distribution or the allocation of property among creditors.” Elscint, Inc. v. First Wisconsin Fin.
The debtor’s FDCPA proceeding here is related to his bankruptcy case because it could have an effect on payments to his creditors. Although the debtor’s confirmed Chapter 13 plan (Bankr. Docket No. 33) provides for a fixed amount payable to creditors, any recovery he receives from the FDCPA action would be a basis for increased plan payments under § 1329(a)(1) of the Code. See In re Wetzel,
The pending motion to dismiss, however, does not itself call for final adjudication. Denial of the motion would leave the proceeding still to be resolved, and even an order granting dismissal “normally does not eliminate the plaintiffs right to amend once as a matter of right.” Crestview Vill. Apartments v. United States Dept. of Hous. and Urban Dev.,
Factual Background
The allegations of the complaint are uncomplicated. The debtor, Booker La-Grone, alleges that he incurred a consumer debt using “a Sears retail credit card in the early to mid-2000’s,” Complaint (Adversary Docket No. 1) ¶ 9; that the defendant, LVNV Funding, acquired the rights to that debt; and that, through its agent, defendant Resurgent Capital, LVNV Funding filed a proof of claim for the debt in the debtor’s bankruptcy case on September 19, 2013, id. at ¶¶ 12-14.
The complaint goes on to allege that the last transaction made on the Sears account was March 6, 2007 and the account was charged off on October 9, 2007, id. at ¶ 15, so that when the proof of claim was filed-more than five years after the debtor defaulted on the debt-any action on the debt would have been outside the relevant Illinois statute of limitations, id. at ¶¶ 20, 22, 25.
The complaint concludes with the assertion that, by filing the proof of claim after the applicable statute of limitations had expired, the defendants violated the FDCPA in several respects' — -misrepresenting the legal status of the debt, threatening to take action that cannot legally be taken to collect the debt, and using deceptive means to collect the debt. Id. ¶ 25.
Legal Analysis
Rule 7012(b) of the Federal Rules of Bankruptcy Procedure applies Rule 12(b)(6) of the Federal Rules of Civil Procedure to proceedings in bankruptcy. It requires a complaint to present facts that plausibly suggest the plaintiffs right to the relief requested. E.E.O.C. v. Concentra Health Servs.,
The first section of the FDCPA sets out a finding that “abusive, deceptive, and unfair debt collection practices” are employed by debt collectors against consumers, 15 U.S.C. § 1692, and the Act goes on to prohibit a number of specific practices. Section 1262k provides for an award of damages against any debt collector who fails to comply with the Act’s provisions. Three of these provisions are cited in the complaint: § 1692e(2)(A) (prohibiting the “false representation of ... the character, amount, or legal status of any debt”), § 1692e(5) (prohibiting a “threat to take any action that cannot legally be taken”), and § 1692e(10) (prohibiting the “use of ... deceptive means to collect or attempt to collect a debt”). Section 1692f of the Act, which generally prohibits “unfair or unconscionable” debt collection activities, would- be an additional ground for relief.
It might seem difficult for these provisions to be violated by attempting to collect a debt subject to a limitations defense. If a federal lawsuit were filed to collect the debt, Federal Rule of Civil Procedure 8(c) would make the statute of limitations an affirmative defense, which the defendant would have to raise in a responsive pleading or risk waiving. See United States v. N. Trust Co.,
For debt collectors, however, the FDCPA changes this situation. The Seventh Circuit Court of Appeals, along with several other courts, has held that a debt collector violates the FDCPA by attempting to collect a consumer debt in a lawsuit filed against the consumer after the statute of limitations has expired. Phillips v. Asset Acceptance, LLC,
The question raised by the motion to dismiss is whether these decisions, applying the FDCPA to lawsuits against .consumers, indicate that the FDCPA also applies to proofs of claim filed in consumer bankruptcy cases. The defendants suggest three reasons why proofs of claims should be treated differently: (1) the FDCPA does not apply in bankruptcy cases; (2) a proof of claim is not an attempt to collect a consumer debt; and (3) filing a proof of claim subject to a limitations defense does not generate the unfairness or deception found in a lawsuit against a consumer. Neither of the first two reasons is persuasive, but the third one is.
1. The Bankruptcy Code does not preclude FDCPA actions.
When two federal statutes have inconsistent provisions, a court may find that one
The Seventh Circuit, however, has taken a narrow approach to statutory preclusion, holding that “[w]hen two federal statutes address the same subject in different ways,” preclusion results only if there is “either irreconcilable conflict between the statutes or a clearly expressed legislative decision that one replace the other.” Randolph v. IMBS, Inc.,
In Randolph, the conduct complained of was pursuing collection of a discharged debt, as to which the overlap between the Code and the FDCPA was held to present no irreconcilable conflict. Here, the challenged conduct is filing a claim for which the statute of limitations has expired, but the nature of the overlap is the same. The applicable Code provision is § 502(b)(1), which applies to all creditor claims and provides the remedy of disallowance if the claim is unenforceable under nonbankruptcy law — such as an applicable statute of limitations. The remedy, however, does not include damages or attorney fees. The FDCPA, on the other hand, applies only to debt collectors pursuing consumer debts, and it requires some prohibited conduct, such as a misrepresentation. With those elements satisfied, the FDCPA offers the remedies of statutory damages and an award of attorney fees. As in Randolph, the statutory overlap in no way prevents courts from enforcing the provisions of both the Code and the FDCPA, nor does it present debt collectors with any difficulty in complying with both statutes.
The debtor’s FDCPA action, then, is not precluded by the Bankruptcy Code.
2. Filing a proof of claim is an action to collect a debt.
The liability under the FDCPA asserted in the debtor’s complaint can only arise from actions taken “in connection with the collection of any debt.” 15 U.S.C. § 1692e. The defendant’s second ground for dismissing the complaint is that their
A proof of claim, of course, is intended to result in some recovery for the creditor on the debt set out in the proof of claim, and so filing a proof of claim would be within the ordinary meaning of “debt collection.” See Crawford v. LVNV Funding, LLC,
If filing a proof of claim constituted a “collection” activity [under the FDCPA], then filing proofs of claim under § 502(b) would be fundamentally at odds with language in § 362(a)(6) providing that the filing of a petition “operates as a stay, applicable to all entities, of ... any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.” Jenkins v. Genesis Fin. Solutions (In re Jenkins),456 B.R. 236 , 240 (Bankr.E.D.N.C.2011) (emphasis in original); see also McMillen v. Syndicated Office Sys., Inc. (In re McMillen),440 B.R. 907 , 912 (Bankr.N.D.Ga.2010) (“The filing of a proof of claim is a request to participate in the distribution of the bankruptcy estate under court control. It is not an effort to collect a debt from the debtor, who enjoys the protections of the automatic stay.”); Simmons v. Roundup Funding, LLC,622 F.3d 93 , 95 (2d Cir.2010); B-Real, LLC v. Chaussee (In re Chaussee),399 B.R. 225 , 244 (9th Cir. BAP 2008) [ (Jury, J., concurring) ].
This analysis is not persuasive. First, there is no contradiction between a proof of claim being an action to collect a debt and the automatic stay. The automatic stay does indeed prohibit debt collection activity, and filing a proof of claim is an action to collect a debt, but it is well established that the automatic stay does not prohibit actions taken in the bankruptcy case itself. See Eger v. Eger (In re Eger),
Second, the FDCPA does not limit collection activity to actions against the consumer debtor personally. Rather, § 1692k of the Act makes debt collectors liable to “any person” as to whom they violate its provisions, not simply to the consumer who owes the debt subject to collection. Accordingly, the Seventh Circuit has found that the son of the person who owed a debt had standing under § 1692d of the Act for his own injuries based on allegedly unfair and unconscionable debt collection practices. Todd v. Collecto, Inc.,
So even though the bankruptcy estate is a separate entity from the debtor, a proof of claim filed in a bankruptcy case would be actionable under the FDCPA if it violated one of the Act’s provisions.
3. Filing a proof of claim subject to a limitations defense does not violate the FDCPA
The FDCPA sets out no prohibition against a debt collector pursuing collection of a debt subject to a limitation defense.
Courts have interpreted these FDCPA provisions as prohibiting a debt collector from filing untimely lawsuits against consumer debtors, but these interpretations are grounded in the situation of the defendants facing such lawsuits. In Phillips v. Asset Acceptance, LLC,
Because few unsophisticated consumers would be aware that a statute of limitations could be used to defend against lawsuits based on stale debts, such consumers would - unwittingly acquiesce to such lawsuits. And, even if the consumer realizes that she can use time as a defense, she will more than likely still give in rather than fight the lawsuit because she must still expend energy and resources and subject herself to the embarrassment of going into court to present the defense; this is particularly true in light of the costs of attorneys today.
These considerations make untimely collection lawsuits both deceptive and unfair to the consumer. See also Gammon v. GC Servs. L.P.,
The question raised by the defendants’ motion is whether this analysis applies to debt collectors filing bankruptcy proofs of claims. The Eleventh Circuit has held that it does apply. Crawford v. LVNV Funding, LLC,
First, in collection lawsuits, the debtors themselves must assert the statute of limitations in an answer. Debtors in bankruptcy cases, on the other hand, have the benefit of a trastee with a fiduciary duty to all parties to “examine proofs of claims and object to the allowance of any claim that is improper.” 11 U.S.C. § 704(a)(5), applicable in Chapter 13 under § 1302(b)(1); In re Andreas,
Second, a debtor in bankruptcy has much less at stake in the allowance of a proof of claim than a defendant facing the prospect of an adverse judgment in a collection lawsuit. A proof of claim does not result in collection from the debtor personally but seeks only a share in the total payments available to all of the debtor’s creditors. This is most obvious in a Chapter 7 case, where the debtor’s nonexempt assets are the sole source of payments to creditors and where it is rare for the value of these assets to exceed the amount of the debt. Accordingly, in most Chapter 7 cases, the debtor has no standing to object to claims. See In re Curry,
Third, in a collection lawsuit a consumer debtor would have to retain and likely pay for the services of a lawyer. Debtors in bankruptcy, by contrast, are likely from the outset of the case to be represented by an attorney who can both advise them about the existence of a statute of limitations defense and file an objection if the trustee does not. See By the Numbers—Pro Se Filers in the Bankruptcy Courts, The Third Branch News (Oct. 2011), http:// www.uscourts.gov/N ews/TheThirdBraneh/ ll-10-01/By_the_Numbers — Pro_Se_ FilersAn_the_Bankruptcy_Courts.aspx (last visited Jan. 16, 2015) (stating that in 2011 debtors were represented by counsel in 92% of Chapter 7 cases and 90% of Chapter 13 cases); see also Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 775 (7th Cir.2007) (“[A] representation by a debt collector that would be unlikely to deceive a competent lawyer, even if he is not a specialist in consumer debt law, should not be actionable.”). The debtor here has been represented by counsel throughout the case.
Finally, even if the trustee fails to file a claim objection based on the statute of limitations, even if filing a claim objection would have a significant benefit for the debtor, and even if the debtor did not have legal assistance, it would be easier — and less embarrassing — for the individual debt- or to file a claim objection pro se than to deal with an untimely collection lawsuit. Under Bankruptcy Rule 3001(c)(3), a claim for credit card debt — such as the one at the center of this adversary proceeding— must list the creditor who held the debt at the time of the account holder’s last transaction, the date of the last transaction, the date of the last payment, and the date the account was charged to profit or loss. As explained in the Advisory Committee Notes to the 2012 Amendments, these required disclosures were designed to “provide a basis for assessing the timeliness of the claim.” So unlike the consumer who has only the information required in a state court complaint, a debtor in bankruptcy should always have the information needed to determine whether the statute of limitations for a claim has expired. And unlike the situation in a collection action, where a consumer debtor would need to become acquainted with the applicable procedures and make a potentially embarrassing appearance, the debtor in a bankruptcy case would be involved in the case before the untimely proof of claim was filed and would already be familiar with the procedures for filing documents with the court.
In short, a debtor in bankruptcy is not in the position of a consumer facing a collection lawsuit. Since the concerns expressed in Phillips v. Asset Acceptance are not raised by untimely proofs of claims, there is no reason to interpret the FDCPA as having the same effect on bankruptcy claims that it has on civil actions. By
Conclusion
For the reasons set out above, the complaint will be dismissed by separate order, with the plaintiff granted 21 days from entry of the dismissal order to file an amended complaint.
Notes
. The complaint's allegation of the applicable statute of limitations is at least arguably correct. See 735 ILCS 5/13-205; Portfolio Acquisitions v. Feltman,
. This conclusion is consistent with the recent decision Brimmage v. Quantum3 Group LLC (In re Brimmage),
. Of course, where Chapter 13 cases are dismissed before discharge, the debtors would still owe whatever portion of their debts were not paid through their plans, and if payments made on a time-barred claim had been made to other creditors, the amounts remaining to be paid on the other claims would be lower. But this contingency still presents a much smaller effect on a debtor than would a civil judgment.