In a decision on Monday, the Supreme Court ruled that under the Fair Debt Collection Practices Act (FDCPA), debt collectors that knowingly pursue stale debt in bankruptcy proceedings do not run the risk of facing potential consumer protection lawsuits, Law360 reports.
The ruling came after the high court voted 5-3 to overturn an Eleventh Circuit decision which had found Midland Funding LLC, a purchaser of unpaid debt, potentially liable under the FDCPA. According to the Supreme Court, Midland Fund is no longer liable under the Act for attempting to collect on bankruptcy on decade-old credit card debt, which Law360 notes had become time barred after six years.
Justice Stephen G. Breyer stated that the Midland’s attempts to collect on clearly expired claims were not “false, deceptive, or misleading,” and according the Breyer, the firm’s proof of claim falls within the U.S. Bankruptcy Code’s definition of “claim.”
"The law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense," Breyer wrote. "And we see nothing misleading or deceptive in the filing of a proof of claim that, in effect, follows the code’s similar system."
In March 2014, plaintiff Aleida Johnson filed for Chapter 13 protection, but Midland Funding filed a proof of claim for a payment of $1,879 in unpaid credit card debt during Johnson’s bankruptcy. According to Johnson, the last credit card transaction on the account had occurred in May 2003, and in Alabama where the claim occurred, the statute of limitations for collecting on overdue debt is six years.
While a federal judge had originally dismissed the claims on the grounds that the Bankruptcy code authorizes all creditors to file proof of claims at any time, the Eleventh Circuit stepped in to say that the Bankruptcy Code and FDCPA go hand-in-hand.
The Supreme Court majority voted to repeal the Eleventh Circuits decision, though the three dissenting, Justices Sonia Sotomayor, joined by Justices Elena Kagan and Ruth Bader Ginsburg, called Midland’s actions in collecting stale debt “unfair” and “unconscionable .”
“It is said that the law should not be a trap for the unwary,” they said in their dissent. “Today’s decision sets just such a trap.”