Attempted Collection of Time-Barred Claims by Junk Debt Buyers.
On January 17, 2017, the United States Supreme Court heard oral arguments in Midland Funding, LLC v. Aleida Johnson. Midland Funding is one of the most well known junk debt buyers in the industry.
Aleida Johnson filed for Chapter 13 bankruptcy protection in Alabama in 2014. Midland Funding had purchased some old debts that were owed by her and subsequently filed a proof of claim in her Chapter 13 bankruptcy case. The last action to collect the debts had occurred in 2003, and the statute of limitations in Alabama on the collection of a debt is six years (as a side note the statute in Texas is four years), Ms. Johnson sued Midland Funding claiming that their filing of the time-barred claim violated the Fair Debt Collection Protection Act (FDCPA).
The District Court dismissed the suit, concluding that while the FDCPA prevented the collection of a known time-barred claim, the U.S. Bankruptcy Code allows a creditor to file a proof of claim in a bankruptcy case after the statute of limitations has run. The U.S. Court of Appeals for the Eleventh Circuit reversed and remanded the case, concluding that although the Bankruptcy Code allowed creditors to file time-barred claims in a bankruptcy case, they were not absolved from liability under the FDCPA for filing the claim.
The Supreme Court agreed to hear the case based on the fact that there has been a split among the circuits on this issue. From my own personal experience the problem that junk debt buyers create in the bankruptcy process is immense. I consistently see numerous time-barred claims being filed in my clients’ chapter 13 cases. The bankruptcy court invalidates the claims, but only after enormous time and expense is incurred in objecting to the time-barred claims.
It is my hope that the U.S. Supreme Court will confirm the holding of the Eleventh Circuit.
THE FIFTH CIRCUIT COURT OF APPEALS HAS RULED THAT THE SENDING OF A COLLECTION LETTER TO AN UNSOPHISTICATED CONSUMER ON A TIME-BARRED DEBT, WITHOUT REVEALING THAT THE DEBT IS JUDICIALLY UNENFORCEABLE, CAN VIOLATE THE FAIR DEBT COLLECTION PRACTICES ACT (“FDCPA”).
The Fifth Circuit Court of Appeals on September 8, 2016, issued its opinion in Daugherty v. Convergent Outsourcing, Inc., et al., concluding that the sending of a debt collection letter on a time-barred claim to an unsophisticated consumer without revealing that the claim is judicially unenforceable can violate the FDCPA. This means that the debtor can file suit against the collection agency and seek the statutory damages and attorney’s fees that are allowed under the FDCPA.
The collection agency in Daugherty, Convergent Outsourcing, sent correspondence to the Debtor, Roxanne Daugherty, offering to settle a claim in the amount of $32,405.92 for a one-time payment of $3,240.59. The correspondence did not acknowledge that the claim was time-barred and thus judicially unenforceable. The failure to disclose the fact that the claim was judicially unenforceable violates the FDCPA prohibition against “the false representation of the character or legal status of any debt.”
If you have received correspondence from a collector that you believe relates to a time-barred claim, which typically means in the State of Texas a debt that was incurred more than four years prior to the attempted collection without any intervening payments or collection attempts, then give me a call at (800) 867-1583 and we can discuss whether you might have a potential claim against the collector.
As always, any opinions expressed on this website are just that, opinions. Your individual situation might be different than outlined above, so it is probably best that you give me a call to discuss your individual situation. I pride myself on giving you the answers to your questions that are based on your individual circumstances.