Indiana And Pennsylvania District Courts Hold That Filing Proofs Of Claim On Time-Barred Debt Does Not Violate FDCPA

Two federal district courts have dismissed lawsuits filed against debt collectors, holding that filing proofs of claim in a bankruptcy case on debt subject to a statute of limitations defense is not actionable under the Fair Debt Collection Practices Act.

In Donaldson v. LVNV Funding, LLC, Civil Action No. 1:14-cv-01979-LJM-TAB (S.D. Ind. Apr. 7, 2015) and Torres v. Asset Acceptance, LLC, Civil Action No. 2:14-cv-6542-ER (E.D. Pa. Apr. 7, 2015), the debt collectors filed proofs of claim in the plaintiffs' Chapter 13 bankruptcy cases. The plaintiffs filed lawsuits under the FDCPA alleging that filing the proofs of claim violated the FDCPA by making false representations of the character, amount, or legal status of the debt, by threatening to take action that cannot legally be taken, by using false representations or deceptive means to collect or attempt to collect the debts, and by using unfair or unconscionable means to collect or attempt to collect the debts. By granting the debt collectors' motions to dismiss in both cases, the Southern District of Indiana and the Eastern District of Pennsylvania have declined to follow the Eleventh Circuit's decision in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014).

Donaldson v. LVNV Funding, LLC

In Donaldson, the court rejected the plaintiff's argument that filing the proofs of claim mischaracterized the legal status of the debt. Under Indiana law, a debt that has become uncollectible due to the statute of limitations is not extinguished. Rather, "the money is still owed, and the FDCPA only regulates the remedies available to the debt collector."

The court also held that filing a "stale" proof of claim does not violate the provision of the FDCPA prohibiting threats to take action that cannot legally be taken since "there is no 'threat' in a proof of claim that accurately reflects information about an unsecured debt that the debtor himself has listed on his schedules." In fact, the court held, the Bankruptcy Code specifically states that such debts are allowed, unless objected to by any party in interest. If a party in interest wishes to avoid the debt on the grounds of staleness, that party must object or raise the statute of limitations defense. Otherwise, it is waived.

Importantly, the court applied the "competent lawyer" standard to evaluate whether filing the proofs of claim amounted to an FDCPA...