Maryland Legal Alert for Financial Services

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Debt Buyers Win in Supreme Court FDCPA "Proof of Claim" Case

The United States Supreme Court recently issued a decision holding that debt buyers/creditors do not violate the Fair Debt Collection Practices Act (FDCPA) by filing a proof of claim in a bankruptcy proceeding concerning a debt where the underlying statute of limitations has expired.  Until this point, lower courts have split concerning the issue, with many Circuits holding in favor of debt buyers/creditors (see our Legal Alerts in March 2015, April 2015, June 2015, and September 2016).  The 11th Circuit has consistently held against debt buyers/creditors and the Supreme Court's recent decision overturns an 11th Circuit decision from May of 2016 in which the 11th Circuit held that: (1) filing a proof of claim related to a time-barred debt is an attempt to collect a debt that misrepresents the "legal status" of the debt in violation of the FDCPA; and (2) the Bankruptcy Code does not preempt the FDCPA.  The Supreme Court reversed the 11th Circuit, and held that filing a proof of claim on a time-barred debt is not unfair or unconscionable.  The Supreme Court noted that untimeliness is an affirmative defense that a debtor may raise to avoid payment of a claim and the protections afforded a debtor within the bankruptcy process significantly diminish any concerns that a consumer will unwittingly pay a time-barred claim.  The Supreme Court's decision resolves the previous split among Circuits in favor of debt buyers/creditors.  Please contact Christopher Rahl with questions concerning this topic.