Month: December 2016

Disclaimers as a defense to FDCPA Violations

In the lead-up to the Supreme Court case Midland Funding LLC v. Johnson, the 4th circuit recently ruled that a disclaimer was sufficient to protect creditors from violating the FDCPA when filing proofs of claim.

In a bankruptcy, creditors get paid through filing proofs of claim – however, the Midland case mentioned above may soon resolve whether or not filing a stale proof of claim (one that has passed the statute of limitations) violates the FDCPA.

The Fair Debt Collections Practices Act was passed to protect consumers from predatory debt collectors.  One of the protections offered was that communications be truthful, which would include whether or not a debt is owed.  By filing a proof of claim on a time barred debt, there is a colorable argument that the FDCPA is being violated.  However, debt collectors can still call debtors to request payment on time barred debt, they just cannot try to enforce it in court, or explicitly state that there is a legal obligation to pay.

In the present case (not the Supreme Court case which is pending) the 4th Circuit ruled that the boiler plate language found on most bankruptcy collection letters that “this is not an attempt to collect a debt” was sufficient to obviate the sanctions of the FDCPA.  In a sense, it is creating an avenue for creditors in the event of a pro-debtor decision being handed down by the Supreme Court.


Child Support Case in Kimball

A case recently came before the 10th Circuit regarding whether or not payments made after the statute of limitations on child support arrearages constituted an extension of the statute of limitations.

Every claim, or lawsuit, has an expiration date – this carries over into bankruptcy and those who are looking to get paid out of the bankruptcy estate can only collect if their claims are within the statute of limitations, which varies depending on the claim.  For instance, a breach of contract claim must be brought within four years, and a personal injury case must be brought within 2 years.  Failure to do so will get your case dismissed, even if all the facts are on your side.  The logic behind this is obvious – they want to encourage punctual litigants.  Evidence gets old, or lost, and no one remembers what happened ten years after a car crash.

However, the judge in In Re: Kimball dodged the issue of statute of limitations, and addressed the choice of law provisions, something that is adopted in Federal courts but has not been done so in bankruptcy.  The general idea is that even though a case is brought in federal court, the substantive law of the state will still be applied.  Here, the law of Utah would be applied since that is where most of the marriage occurred, even though Oklahoma was also an option.  Because of this, the statute of limitations was not based on whether payments were made beyond the applicable time period (which both husband and wife agreed on) but whether or not Oklahoma or Utah law applied, something neither spouse brought up.

The wife ended up winning and is probably oblivious to the reasons why – however, for lawyers, this is an example of kicking the can down the road.  Making a decision about payments resetting the clock on a statute of limitations may have seemed fraught with unintended consequences (since it would bind lower courts) so the Honorable Judge Loyd most likely decided to exercise judicial discretion and based his decision on something much less controversial.