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.