Third Circuit Holds That Debt Collectors Must Generally Comply With The Bankruptcy Code And The Fair Debt Collection Practices Act

In Simon v. FIA Card Services, N.A.,1 the U.S. Court of Appeals for the Third Circuit recently ruled that a debtor in a bankruptcy proceeding is not unconditionally precluded from bringing claims under the Fair Debt Collection Practices Act (the "FDCPA"). The FDCPA, enacted to eliminate abusive debt collection practices by debt collectors, establishes guidelines for debt collecting, clarifies creditor rights when dealing with debt collectors, and establishes penalties for debt collectors that fail to comply with the provisions of the FDCPA. When claims under the FDCPA are asserted by a debtor in a bankruptcy proceeding, they are often challenged by the debt collector on the basis that the Bankruptcy Code governs such matters and precludes application of the FDCPA. Although some courts have accepted this argument,2 the Third Circuit in Simon sided with courts that have found otherwise. In particular, the Third Circuit adopted the Seventh Circuit standard, which provides that courts should examine whether the FDCPA claim raises a direct conflict with the Bankruptcy Code, or whether it is possible to enforce both the Bankruptcy Code and the FDCPA at the same time. Applying this standard, the Third Circuit found that one of the debtors' FDCPA claims gave rise to a direct conflict, while another did not.

Factual Background

On December 30, 2010, Robert and Stacey Simon filed a voluntary petition under chapter 7 of the Bankruptcy Code.3 Shortly thereafter, on January 28, 2011, a law firm representing FIA Card Services sent a letter to the Simons' bankruptcy attorneys, stating that FIA was considering filing an adversary proceeding to challenge the Simons' proposed discharge of credit card debt owed to FIA.4 The letter also stated that FIA would forgo the adversary proceeding if the Simons either stipulated that the credit card debt was not dischargeable, or agreed to pay FIA a reduced amount to settle the debt.5 Finally, the letter stated that FIA was scheduling a Bankruptcy Rule 2004 examination to collect information for filing the adversary proceeding. 6 A Rule 2004 subpoena was attached to the letter.

The Simons filed motions in the bankruptcy court to quash the Rule 2004 subpoena for failure to comply with the subpoena requirements of Bankruptcy Rule 9016 and Federal Rule of Civil Procedure 45.7 The Simons also filed an adversary proceeding against FIA and its law firm, asserting FDCPA claims. 8The bankruptcy court quashed the Rule 2004...