Chaille Dubois v. Atlas Acquisitions LLC

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1945
In Re: ERIC DUBOIS,
Debtor.
----------------------
CHAILLE DUBOIS, f/k/a Chaille Gaines, f/k/a Candace DuBois,
f/k/a Candace Gaines, f/k/a Candi Gaines, f/k/a Candi
DuBois; KIMBERLY ADKINS,
Plaintiffs - Appellants,
v.
ATLAS ACQUISITIONS LLC,
Defendant – Appellee,
and
TIMOTHY P. BRANIGAN; NANCY SPENCER GRISBY,
Trustees.
Appeal from the United States Bankruptcy Court for the District
of Maryland, at Greenbelt. Thomas J. Catliota, Bankruptcy
Judge. (15-00110; 14-28589)
Argued: May 10, 2016 Decided: August 25, 2016
Before DIAZ, FLOYD, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Floyd wrote the majority
opinion, in which Judge Thacker joined. Judge Diaz wrote a
dissenting opinion.
ARGUED: Morgan William Fisher, LAW OFFICES OF MORGAN FISHER LLC,
Annapolis, Maryland, for Appellants. Donald S. Maurice, Jr.,
MAURICE WUTSCHER, LLP, Flemington, New Jersey, for Appellee. ON
BRIEF: Courtney L. Weiner, LAW OFFICES OF MORGAN FISHER LLC,
Washington, D.C., for Appellants. Alan C. Hochheiser, BUCKLEY
KING, LPA, Cleveland, Ohio, for Appellee.
2
FLOYD, Circuit Judge:
Appellants Kimberly Adkins and Chaille Dubois filed
separate Chapter 13 bankruptcy petitions in the Bankruptcy Court
for the District of Maryland. Appellee Atlas Acquisitions LLC
(Atlas) filed proofs of claim in their bankruptcy cases based on
debts that were barred by Maryland’s statute of limitations. 1
The issue on appeal is whether Atlas violated the Fair Debt
Collection Practices Act (FDCPA) by filing proofs of claim based
on time-barred debts. We hold that Atlas’s conduct does not
violate the FDCPA, and affirm the bankruptcy court’s dismissal
of Appellants’ FDCPA claims and related state law claim.
I.
The facts of Appellants’ cases are similar. Adkins filed
for Chapter 13 bankruptcy on August 29, 2014. Atlas filed two
proofs of claim in her case. The first proof of claim indicated
that Adkins owed Atlas $184.62 based on a loan that originated
with payday lender Check N Go and that Atlas purchased from
Elite Enterprise Services, LLC (Elite Enterprise) on September
1 “A proof of claim is a form filed by a creditor in a
bankruptcy proceeding that states the amount the debtor owes to
the creditor and the reason for the debt.” Covert v. LVNV
Funding, LLC, 779 F.3d 242, 244 n.1 (4th Cir. 2015).
3
15, 2014. 2 The proof of claim identified the last transaction
date on the account as May 19, 2009. Atlas’s second proof of
claim was for $390.00 based on a loan that originated with
payday lender Impact Cash USA and that Atlas purchased from
Elite Enterprise on November 18, 2014. The proof of claim
identified the last transaction date on that account as
September 10, 2009. It is undisputed that both debts were
beyond Maryland’s three-year statute of limitations when Atlas
purchased and attempted to assert the debts in Adkins’s
bankruptcy case. See Md. Code Ann., Cts. & Jud. Proc. § 5-101.
Adkins neither listed the debts on her bankruptcy schedules nor
sent a notice of bankruptcy to Atlas.
Dubois filed for Chapter 13 bankruptcy on December 6, 2014.
Atlas filed a proof of claim for $135.00 based on a loan that
originated with payday lender Iadvance and that Atlas purchased
from Elite Enterprise on January 5, 2015. The proof of claim
identified the last transaction date on the account as October
18, 2008. It is undisputed that this debt was also beyond
2
Atlas asks the Court to strike any allegation that the
loans in this appeal originated with payday lenders. However,
the proofs of claim attached to Appellants’ complaints indicate
that Atlas itself designated the debts “payday.” See J.A. 55,
140. Accordingly, we find this fact sufficiently alleged. See
Goines v. Valley Cmty. Servs. Bd., No. 15-1589, ---F.3d---, 2016
WL 2621262, at *2 (4th Cir. May 9, 2016) (explaining that on
motion to dismiss, courts may consider documents attached to
complaint as exhibits).
4
Maryland’s statute of limitations when Atlas purchased and
attempted to assert the debt in Dubois’s bankruptcy case.
Dubois did not list the debt on her bankruptcy schedules nor did
she send a notice of bankruptcy to Atlas.
Adkins and Dubois filed separate adversary complaints
against Atlas. Both objected to Atlas’s claims as being time-
barred and further alleged that Atlas violated the FDCPA by
filing proofs of claim on stale debts. Appellants sought
disallowance of Atlas’s claims as well as damages, attorney’s
fees, and costs under the FDCPA. 3
Atlas conceded that its claims were based on time-barred
debts and stipulated to their disallowance. However, Atlas
moved to dismiss Appellants’ FDCPA claims under Federal Rule of
Civil Procedure 12(b)(6) for failure to state a claim upon which
relief could be granted. See Fed. R. Bankr. P. 7012(b)
(incorporating Rule 12(b)(6) into adversary proceedings). After
hearing consolidated oral arguments, the bankruptcy court
concluded that filing a proof of claim does not constitute debt
collection activity within the meaning of the FDCPA and granted
Atlas’s motion to dismiss. Pursuant 28 U.S.C. § 158(d)(2), we
3 Dubois additionally alleged that Atlas violated the
Maryland Consumer Debt Collection Act (MCDCA). Md. Code Ann.,
Com. Law § 14-201, et seq. The parties do not analyze the MCDCA
separately from the FDCPA. Accordingly, neither do we.
5
permitted Appellants to appeal the bankruptcy court’s decision
directly to this Court. We review the bankruptcy court’s
dismissal of Appellants’ claims under Rule 12(b)(6) de novo.
See, e.g., In re Mwangi, 764 F.3d 1168, 1173 (9th Cir. 2014); In
re McKenzie, 716 F.3d 404, 412 (6th Cir. 2013).
II.
Before addressing the substance of Appellants’ claims, we
provide a brief overview of the relevant statutes in this case:
the Bankruptcy Code (the “Code”) and the FDCPA.
A.
“The principal purpose of the Bankruptcy Code is to grant a
‘fresh start’ to the ‘honest but unfortunate debtor.’” Marrama
v. Citizens Bank, 549 U.S. 365, 367 (2007) (quoting Grogan v.
Garner, 498 U.S. 279, 286, 287 (1991)). Through bankruptcy, the
debtor’s assets are collected for equitable distribution among
creditors and his remaining debts are discharged. See Covert v.
LVNV Funding, LLC, 779 F.3d 242, 248 (4th Cir. 2015); In re
Jahrling, 816 F.3d 921, 924 (7th Cir. 2016). A bankruptcy
debtor must file with the bankruptcy court a list of creditors,
a schedule of assets and liabilities, and a statement of the
debtor’s financial affairs. 11 U.S.C. § 521(a)(1). "[B]eing
all-inclusive on the schedules is consistent with the Code’s
6
principle of honest and full disclosure.” In re Vaughn, 536
B.R. 670, 676 (Bankr. D.S.C. 2015). Scheduling a debt notifies
the creditor of the bankruptcy and of the creditor's opportunity
to file a proof of claim asserting a right to payment against
the debtor’s estate. See id. at 679; 11 U.S.C. § 501(a).
The bankruptcy court may “allow” or “disallow” claims from
sharing in the distribution of the bankruptcy estate. 11 U.S.C.
§ 502. In Chapter 13 proceedings, allowed claims are typically
paid, either in whole or in part, out of the debtor’s future
earnings pursuant to a repayment plan proposed by the debtor and
confirmed by the bankruptcy court. See id. § 1322(a)(1); 4-501
Collier on Bankruptcy ¶ 501.01 (Collier). Upon completion of
all payments under the plan, the bankruptcy court “grant[s] the
debtor a discharge of all debts provided for by the plan or
disallowed.” 11 U.S.C. § 1328(a). Thus, at the end of the
process the debtor receives the “fresh start” contemplated by
the Bankruptcy Code.
B.
Congress enacted the FDCPA to eliminate abusive debt
collection practices and to ensure that debt collectors who
refrain from such practices are not competitively disadvantaged.
15 U.S.C. § 1692(a), (e). The FDCPA regulates the conduct of
“debt collectors,” defined to include “any person who uses any
7
instrumentality of interstate commerce or the mails in any
business the principal purpose of which is the collection of any
debts, or who regularly collects or attempts to collect,
directly or indirectly, debts owed or due or asserted to be owed
or due another.” Id. § 1692a(6). Among other things, the FDCPA
prohibits debt collectors from using “any false, deceptive, or
misleading representation or means in connection with the
collection of any debt,” and from using “unfair or
unconscionable means to collect or attempt to collect any debt.”
Id. §§ 1692e-1692f. The statute provides a non-exhaustive list
of conduct that is deceptive or unfair (e.g., falsely implying
that the debt collector is affiliated with the United States,
id. § 1692e(1)). Debt collectors who violate the FDCPA are
liable for actual damages, statutory damages of up to $1,000,
and attorney’s fees and costs. See id. § 1692k(a).
C.
Federal courts have consistently held that a debt collector
violates the FDCPA by filing a lawsuit or threatening to file a
lawsuit to collect a time-barred debt. See Crawford v. LVNV
Funding, LLC, 758 F.3d 1254, 1259-60 (11th Cir. 2014)
(collecting cases), cert. denied, 135 S. Ct. 1844 (2015).
Appellants contend that filing a proof of claim on a time-barred
debt in a bankruptcy proceeding similarly violates the FDCPA.
8
Atlas counters that filing a proof of claim is not debt
collection activity and is therefore not subject to the FDCPA.
Alas further argues that, even if the FDCPA applies, filing a
proof of claim on a time-barred debt does not violate its
provisions. These arguments are addressed in turn.
III.
Atlas does not dispute that it is a debt collector but
argues that filing a proof of claim does not constitute debt
collection activity regulated by the FDCPA. See 15 U.S.C.
§ 1692e (prohibiting deceptive or misleading representations “in
connection with the collection of any debt”); id. § 1692f
(prohibiting unfair or unconscionable means “to collect or
attempt to collect any debt”). Instead, Atlas contends that a
proof of claim is merely a “request to participate in the
bankruptcy process.” Appellee’s Br. 20.
Determining whether a communication constitutes an attempt
to collect a debt is a “commonsense inquiry” that evaluates the
“nature of the parties’ relationship,” the “[objective] purpose
and context of the communication[],” and whether the
communication includes a demand for payment. Gburek v. Litton
Loan Servicing LP, 614 F.3d 380, 385 (7th Cir. 2010); see also
Olson v. Midland Funding, LLC, 578 F. App’x 248, 251 (4th Cir.
2014) (citing Gburek factors approvingly). Here, the “only
9
relationship between [the parties] [is] that of a debtor and
debt collector.” Olson, 578 F. App’x at 251. Moreover, the
“animating purpose” in filing a proof of claim is to obtain
payment by sharing in the distribution of the debtor’s
bankruptcy estate. See Grden v. Leikin Ingber & Winters PC, 643
F.3d 169, 173 (6th Cir. 2011); 4-501 Collier ¶ 501.01. This
fits squarely within the Supreme Court’s understanding of debt
collection for purposes of the FDCPA. See Heintz v. Jenkins,
514 U.S. 291, 294 (1995) (explaining that in ordinary English,
an attempt to “collect a debt” is an attempt “to obtain payment
or liquidation of it, either by personal solicitation or legal
proceedings” (quoting Black’s Law Dictionary 263 (6th ed.
1990))). Precedent and common sense dictate that filing a proof
of claim is an attempt to collect a debt. The absence of an
explicit demand for payment does not alter that conclusion,
Gburek, 614 F.3d at 382, nor does the fact that the bankruptcy
court may ultimately disallow the claim.
Atlas argues that treating a proof of claim as an attempt
to collect a debt would conflict with the Bankruptcy Code’s
automatic stay provision. The automatic stay provides that
filing a bankruptcy petition “operates as a stay” of “any act to
collect, assess, or recover a claim against the debtor that
arose before the commencement of the case.” 11 U.S.C.
§ 362(a)(6). Atlas argues that if filing a proof of claim were
10
an act to collect debt, then such filing would violate the
automatic stay, “an absurd result.” Appellee’s Br. 21.
Atlas’s quandary is easily resolved as the automatic stay
simply bars actions to collect debt outside of the bankruptcy
proceeding. See, e.g., Cent. States, Se. & Sw. Areas Pension
Fund v. Basic Am. Indus., Inc., 252 F.3d 911, 918 (7th Cir.
2001) (“‘[D]emanding’ payment from a debtor in bankruptcy other
than in the bankruptcy proceeding itself is normally a violation
of the automatic stay”); Campbell v. Countrywide Home Loans,
Inc., 545 F.3d 348, 354 (5th Cir. 2008) (explaining that the
automatic stay “merely suspends an action to collect the claim
outside the procedural mechanisms of the Bankruptcy Code”). The
automatic stay helps channel debt collection activity into the
bankruptcy process. It does not strip such activity of its debt
collection nature for purposes of the FDCPA.
Finally, Atlas argues that filing a proof of claim is not
an attempt to collect debt because the proof of claim is
directed to the bankruptcy court and trustee rather than to the
debtor. However, collection activity directed toward someone
other than the debtor may still be actionable under the FDCPA.
See, e.g., Sayyed v. Wolpoff & Abramson, 485 F.3d 226, 232-33
(4th Cir. 2007) (finding that FDCPA “plainly” applies to
communications made by debt collector to debtor’s counsel rather
than debtor); Horkey v. J.V.D.B. & Assocs., Inc., 333 F.3d 769,
11
774 (7th Cir. 2003) (finding that debt collector’s phone call to
debtor’s co-worker was “in connection with the collection of a
debt” where purpose of the call was to induce debtor to settle
her debt). Although a proof of claim is filed with the
bankruptcy court, it is done with the purpose of obtaining
payment from the debtor’s estate. That the claim is paid by the
debtor’s estate rather than the debtor personally is irrelevant
for purposes of the FDCPA. See 15 U.S.C. §§ 1692e, 1692f
(prohibiting the use of deceptive or unfair means to collect
“any debt,” without specifying a payor).
Accordingly, we find that filing a proof of claim is debt
collection activity regulated by the FDCPA.
IV.
We next consider whether filing a proof of claim based on a
debt that is beyond the applicable statute of limitations
violates the FDCPA. Deciding this issue requires closer
examination of the claims process in bankruptcy.
The Federal Rules of Bankruptcy Procedure specify the form,
content, and filing requirements for a valid proof of claim.
See, e.g., Fed. R. Bankr. P. 3001. A properly filed proof of
claim is prima facie evidence of the claim’s validity, and the
claim is “deemed allowed” unless “a party in interest” objects.
11 U.S.C. § 502. The bankruptcy trustee and debtor are parties
12
in interest who may object. 4 Indeed, the trustee has a statutory
duty to “examine proofs of claims and object to the allowance of
any claim that is improper.” Id. § 704(a)(5).
If objected to, the Code disallows claims based on time-
barred debts. See id. § 502(b)(1) (stating that a claim shall
be disallowed if it is “unenforceable against the debtor . . .
under any agreement or applicable law”); id. § 558 (stating that
the bankruptcy estate has “the benefit of any defense available
to the debtor . . . including statutes of limitation”). As
previously noted, debts that are “provided for by the plan or
disallowed under section 502” may be discharged. Id. § 1328
(emphasis added).
Appellants contend that the FDCPA should be applied to
prohibit debt collectors from filing proofs of claim on time-
barred debts. Appellants argue that a time-barred debt is not a
“claim” within the meaning of the Bankruptcy Code and that
filing claims on time-barred debts is an abusive practice
4 While the parties do not address the issue, it appears
that creditors are also parties in interest who may object to a
claim filed by another creditor. See, e.g., Adair v. Sherman,
230 F.3d 890, 894 n.3 (7th Cir. 2000) (“Parties in interest
include not only the debtor, but anyone who has a legally
protected interest that could be affected by a bankruptcy
proceeding. Therefore, if one creditor files a potentially
fraudulent proof of claim, other creditors have standing to
object to the proof of claim.” (citation omitted)); In re Varat
Enters., Inc., 81 F.3d 1310, 1317 n.8 (4th Cir. 1996) (“All
creditors of a debtor are parties in interest.”).
13
because such claims are seldom objected to and therefore receive
payment from the bankruptcy estate to the detriment of the
debtor and other creditors. Atlas, meanwhile, argues that a
time-barred debt is a valid “claim” and that filing such a claim
should not be prohibited because only debts that are treated in
the bankruptcy system may be discharged.
A.
The Bankruptcy Code defines the term “claim” broadly to
mean a “right to payment, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured.” 11 U.S.C. § 101(5)(A). By using the
“broadest possible definition,” the Code “contemplates that all
legal obligations of the debtor, no matter how remote or
contingent, will be able to be dealt with in the bankruptcy
case,” thereby providing the debtor the “broadest possible
relief.” H.R. Rep. No. 95–595, p. 309 (1977); S. Rep. No. 95–
989, p. 22 (1978).
“[W]hen the Bankruptcy Code uses the word claim . . . it is
usually referring to a right to payment recognized under state
law.” Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co.,
549 U.S. 443, 451 (2007) (quotation omitted). Under Maryland
law, the statute of limitations “does not operate to extinguish
14
[a] debt, but to bar the remedy.” Potterton v. Ryland Grp.,
Inc., 424 A.2d 761, 764 (Md. 1981) (quotation omitted); see also
Higginbotham v. Pub. Serv. Comm’n of Md., 985 A.2d 1183, 1191
(Md. 2009) (“[W]e have regarded limitations as not denying the
plaintiff’s right of action, but only the exercise of the
right.” (quotation omitted)). Indeed, a stale debt may be
revived if the debtor sufficiently acknowledges the debt’s
existence. Potterton, 424 A.2d at 764; see also FTC, Time-
Barred Debts (July 2013), https://www.consumer.ftc.gov/articles/
0117-time-barred-debts (“Although the [debt] collector may not
sue you to collect [a time-barred] debt, you still owe it. The
collector can continue to contact you to try to collect . . . .
[and] [i]n some states, if you pay any amount on a time-barred
debt or even promise to pay, the debt is ‘revived.’”) (saved as
ECF opinion attachment). Thus, under Maryland law, a time-
barred debt still constitutes a “right to payment” and therefore
a “claim” that the holder may file under the Bankruptcy Code. 5
5Appellants suggest that “by filing proofs of claim on
time-barred debt, Atlas is trying to trick debtors into
unwittingly reviving the statute [of limitations].” Appellants’
Reply Br. 4. Regardless of whether this is Atlas’s intent, it
is difficult to see how a creditor’s filing a proof of claim
would constitute acknowledgement of the debt by the debtor,
particularly when there is persuasive authority that a debtor
does not revive a time-barred debt by listing it in his
bankruptcy schedules. See, e.g., Biggs v. Mays, 125 F.2d 693,
697-98 (8th Cir. 1942); In re Povill, 105 F.2d 157, 160 (2d Cir.
1939).
15
Appellants note that a debt must be enforceable to
constitute a claim, citing the Supreme Court’s statement that
“[t]he plain meaning of a ‘right to payment’ is nothing more nor
less than an enforceable obligation.” Pa. Dep’t of Pub. Welfare
v. Davenport, 495 U.S. 552, 559 (1990). However, we do not read
the Supreme Court’s statement to mean that a debt must be
enforceable in court to be a claim. Indeed, the Bankruptcy Code
treats debts that are “contingent” or “unmatured” as claims
notwithstanding that such debts are not presently enforceable in
court. 11 U.S.C. § 101(5)(A). Furthermore, in Davenport, the
Supreme Court found restitution orders to be claims even though
“neither the Probation Department nor the victim can enforce
restitution obligations in civil proceedings.” 495 U.S. at 558.
Instead, such obligations are enforced by the “substantial
threat of revocation of probation and incarceration.” Id.
It is also notable that while the Bankruptcy Code provides
that time-barred debts are to be disallowed, see, e.g., 11 U.S.C
§ 558, the Code nowhere suggests that such debts are not to be
filed in the first place. Indeed, the Bankruptcy Rules were
recently amended to facilitate the assessment of a claim’s
timeliness by requiring that claims such as the ones at issue in
this appeal be filed with a statement setting forth the last
transaction date, last payment date, and charge-off date on the
account. Fed. R. Bankr. P. 3001, advisory committee notes to
16
2012 Amendments (discussing filing requirements for claims based
on open-end or revolving consumer credit agreements). This Rule
suggests the Code contemplates that untimely debts will be filed
as claims but ultimately disallowed. Lastly, excluding time-
barred debts from the scope of bankruptcy “claims,” and thus
excluding them from the bankruptcy process, would frustrate the
Code’s “intended effect to define the scope of the term ‘claim’
as broadly as possible,” 2-101 Collier ¶ 101.05, and thereby
provide the debtor the broadest possible relief. Accordingly,
we conclude that when the statute of limitations does not
extinguish debts, a time-barred debt falls within the Bankruptcy
Code’s broad definition of a claim.
B.
Next, we consider whether filing a proof of claim on a
time-barred debt violates the FDCPA notwithstanding that the
Bankruptcy Code permits such filing. As noted above, the FDCPA
has been interpreted to prohibit filing a lawsuit on a time-
barred debt. The rationale has been explained as follows:
As with any defendant sued on a stale claim, the
passage of time not only dulls the consumer’s memory
of the circumstances and validity of the debt, but
heightens the probability that she will no longer have
personal records detailing the status of the debt.
Indeed, the unfairness of such conduct is particularly
clear in the consumer context where courts have
imposed a heightened standard of care—that sufficient
to protect the least sophisticated consumer. Because
17
few unsophisticated consumers would be aware that a
statute of limitations could be used to defend against
lawsuits based on stale debts, such consumers would
unwittingly acquiesce to such lawsuits. And, even if
the consumer realizes that she can use time as a
defense, she will more than likely still give in
rather than fight the lawsuit because she must still
expend energy and resources and subject herself to the
embarrassment of going into court to present the
defense; this is particularly true in light of the
costs of attorneys today.
Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala.
1987); see also Crawford, 758 F.3d at 1260; Phillips v. Asset
Acceptance, LLC, 736 F.3d 1076, 1079 (7th Cir. 2013). 6
We note at the outset a unique consideration in the
bankruptcy context: if a bankruptcy proceeds as contemplated by
the Code, a claim based on a time-barred debt will be objected
to by the trustee, disallowed, and ultimately discharged,
thereby stopping the creditor from engaging in any further
6 The Eleventh Circuit in Crawford is the only court of
appeals to hold that filing a proof of claim on a time-barred
debt in a Chapter 13 proceeding violates the FDCPA. 758 F.3d at
1256-57. The Eighth Circuit has “reject[ed] extending
the FDCPA to time-barred proofs of claim,” Nelson v. Midland
Credit Mgmt., Inc., No. 15-2984, 2016 WL 3672073, at *2 (8th
Cir. July 11, 2016), and the Second Circuit has broadly held
that “filing a proof of claim in bankruptcy court (even one that
is somehow invalid) cannot constitute the sort of abusive debt
collection practice proscribed by the FDCPA.” Simmons v.
Roundup Funding, LLC, 622 F.3d 93, 95 (2d Cir. 2010). Other
circuits are presently considering the issue. See, e.g., Owens
v. LVNV Funding, LLC, No 14-cv-02083, 2015 WL 1826005 (S.D. Ind.
Apr. 21, 2015), appeal docketed, No. 15–2044 (7th Cir. May 13,
2015); Torres v. Asset Acceptance, LLC, 96 F. Supp. 3d 541 (E.D.
Pa. 2015), appeal docketed, No. 15–2132 (3d Cir. May 13, 2015).
18
collection activity. 7 If the debt is unscheduled and no proof of
claim is filed, the debt continues to exist and the debt
collector may lawfully pursue collection activity apart from
filing a lawsuit. This is detrimental to the debtor and
undermines the bankruptcy system’s interest in “the collective
treatment of all of a debtor's creditors at one time.” 1 Norton
Bankr. L. & Prac. 3d § 3:9. Clearly, then, when a time-barred
debt is not scheduled the optimal scenario is for a claim to be
filed and for the Bankruptcy Code to operate as written.
Appellants complain, however, that trustees often lack the
time and resources to examine each proof of claim and object to
those that are based on time-barred debts. See Appellants’ Br.
17-18 (explaining that Maryland has only three Chapter 13
trustees to manage approximately 5,000 cases per year, with
approximately 10 proofs of claim filed in each case). Debt
collectors like Atlas purportedly take advantage of this by
filing claims on stale debts in hopes that the claims will go
unnoticed and receive some payment from the bankruptcy estate.
When successful, these debt collectors reduce the amount of
money available to legitimate creditors and may sometimes cause
debtors to pay more into their Chapter 13 plans.
7
By contrast, raising a statute of limitations defense may
defeat a lawsuit to collect a time-barred debt but would not
extinguish the debt or necessarily prevent collection activity.
19
We appreciate the harm that can be wrought if time-barred
claims go unnoticed. However the solution, in our view, is not
to impose liability under the FDCPA that would categorically bar
the filing of such claims, but to improve the Code’s
administration such that it operates as written. 8 This may be
accomplished, for example, by allocating additional resources to
trustees or through action of the United States Trustee, who
appoints and supervises all Chapter 13 trustees. 28 U.S.C.
§ 586.
Another consideration that counsels against finding FDCPA
liability is that, for most Chapter 13 debtors, the amount they
pay into their bankruptcy plans is unaffected by the number of
unsecured claims that are filed. Chapter 13 debtors typically
do not enter into 100 percent repayment plans; thus, their
unsecured creditors receive only partial payment of their
claims, with the remainder being discharged. See 8-1328 Collier
¶ 1328.02 (“Congress clearly contemplated chapter 13 plans
paying little or nothing on unsecured debts . . . .”). As
additional claims are filed, unsecured creditors receive a
smaller share of available funds but the total amount paid by
8Indeed, if Appellants are correct that trustees are
failing to fulfill their statutory duty to examine and object to
improper claims, this is surely producing adverse consequences
beyond the context of time-barred debts.
20
the debtor remains unchanged. Thus, from the perspective of
most Chapter 13 debtors, it may in fact be preferable for a
time-barred claim to be filed even if it is not objected to, as
the debtor will likely pay the same total amount to creditors
and the debt can be discharged. See In re Gatewood, 533 B.R.
905, 909 (8th Cir. BAP 2015) (explaining that “debtors have less
at stake in claims allowance than they would when facing
enforcement of an adverse judgment in a collection action”
because the allowance of additional claims would not affect the
total amount the debtor would pay). 9
Various other considerations also differentiate filing a
proof of claim on a time-barred debt from filing a lawsuit to
collect such debt. First, the Bankruptcy Rules require claims
like the ones filed by Atlas to accurately state the last
transaction and charge-off date on the account, making untimely
claims easier to detect and relieving debtors from the burden of
producing evidence to show that the claim is time-barred. 10
9
As noted above, the FDCPA was enacted in part to protect
scrupulous debt collectors from unfair competition. However,
bankruptcy creditors are sophisticated entities that may object
to improper claims. Thus, we will not invoke the FDCPA solely
on their behalf when, as discussed above, there are reasons not
to do so on behalf of bankruptcy debtors.
10
There is no allegation that Atlas filed inaccurate proofs
of claim. A debt collector who supplies false dates to obscure
a claim’s staleness may well violate the FDCPA. However, we
have no occasion to consider that issue today.
21
Second, a bankruptcy debtor is protected by a trustee and often
by counsel who are responsible for objecting to improper claims
even if, as Appellants argue, they currently do not always do
so. Third, unlike a debtor who is unwillingly sued, a Chapter
13 debtor voluntarily initiates the bankruptcy case, diminishing
concerns about the embarrassment the debtor may feel in
objecting to a stale claim. In sum, the reasons why it is
“unfair” and “misleading” to sue on a time-barred debt are
considerably diminished in the bankruptcy context, where the
debtor has additional protections and potentially benefits from
having the debt treated in the bankruptcy process.
Lastly, Appellants concede that a debt collector would not
violate the FDCPA by filing a proof of claim on a time-barred
debt that the debtor had scheduled and did not designate as
“disputed.” Appellants explain that scheduling a debt as
undisputed is an “invitation to participate” because it provides
“‘notice to a creditor that its debt will be paid . . . in
accordance with the filed proof of claim, claims objection
process, and other bankruptcy provisions.’” Appellants’ Br. 28
n.14 (quoting Vaughn, 536 B.R. at 678). However, such notice is
sent whether a scheduled debt is disputed or not. Moreover, a
time-barred debt that is disputed is less likely to be
inadvertently allowed. Thus, we see no reason to attach FDCPA
liability to a claim filed on a time-barred debt that is
22
scheduled as disputed. Finally, the interests in discharge and
collective treatment of claims discussed above convince us that
FDCPA liability should not attach where a debtor fails to
schedule a time-barred debt.
We conclude that filing a proof of claim in a Chapter 13
bankruptcy based on a debt that is time-barred does not violate
the FDCPA when the statute of limitations does not extinguish
the debt. 11
V.
For the foregoing reasons, we affirm the district court’s
dismissal of Appellants’ FDCPA and MCDCA claims.
AFFIRMED
11 In light of this decision, we do not reach Atlas’s
argument that the Bankruptcy Code precludes the FDCPA and
preempts the MCDCA from applying to the filing of a proof of
claim.
23
DIAZ, Circuit Judge, dissenting:
I join Part III of the majority opinion, which concludes
that filing a proof of claim is debt-collection activity
regulated by the Fair Debt Collection Practices Act (FDCPA), 15
U.S.C. § 1692 et seq.
And while I agree that Atlas’s time-barred claim is a
“claim” under the Bankruptcy Code (as the majority concludes in
Part IV.A), I cannot agree that Atlas’s alleged conduct is
consistent with the FDCPA (or the Maryland Consumer Debt
Collection Act (MCDCA), Md. Code Ann., Com. Law § 14-201 et
seq.). 1 Atlas buys the time-barred debt of people in bankruptcy
and tries to collect by filing proofs of claim in their
bankruptcy proceedings. As Atlas concedes, these claims should
fail—the debt is unenforceable in court. But, absent objection,
the Bankruptcy Code automatically allows all properly filed
claims. 11 U.S.C. § 502. So Atlas plays the odds, representing
itself as entitled to part of the debtors’ estates. If someone
notices the claims and objects, as happened here, Atlas grins
sheepishly—“You caught me!”—and admits that the claim is
meritless. But if the claim slips through, Atlas uses the
bankruptcy court to garner a payoff on unenforceable debts. In
1
I join the majority in analyzing the FDCPA and MCDCA
claims together, as the parties do.
24
my view, this sharp practice is misleading and unfair to debtors
and other creditors, and it gives rise to a cause of action
under the FDCPA.
Moreover, I would hold that the Bankruptcy Code does not
impliedly repeal the FDCPA or preempt the MCDCA. Accordingly, I
would vacate the opinion of the district court and remand for
further proceedings.
I.
The FDCPA aims to “protect[] consumers from abusive and
deceptive practices by debt collectors, and . . . non-abusive
debt collectors from competitive disadvantage.” United States
v. Nat’l Fin. Servs., Inc., 98 F.3d 131, 135 (4th Cir. 1996).
The statute prohibits a wide variety of collection tactics,
including the use of “any false, deceptive, or misleading
representation or means” of debt collection, 15 U.S.C. § 1692e,
and “unfair or unconscionable means to collect or attempt to
collect any debt,” § 1692f.
Although the FDCPA enumerates specific examples of these
broad prohibitions, it does so “[w]ithout limiting [their]
general application.” Id. For example, “[t]he false
representation of . . . the character, amount, or legal status
of any debt” is a specific violation of the general ban on
false, deceptive, or misleading representations. § 1692e(2)(A).
25
But Congress chose not to limit the general prohibitions, to
“enable the courts, where appropriate, to proscribe other
improper conduct which is not specifically addressed.” Stratton
v. Portfolio Recovery Assocs., LLC, 770 F.3d 443, 450 (6th Cir.
2014) (quoting S. Rep. No. 95-382 at 4 (1977), as reprinted in
1977 U.S.C.C.A.N. 1695, 1698).
One such court-imposed proscription applies to lawsuits to
collect time-barred debt. Crawford v. LVNV Funding, LLC, 758
F.3d 1254, 1259-60 & n.6 (11th Cir. 2014) (citing cases). Such
lawsuits raise two major concerns in the consumer context.
First, the “least sophisticated consumer”—from whose vantage
point we view FDCPA communications, see Russell v. Absolute
Collection Servs., Inc., 763 F.3d 385, 394 (4th Cir. 2014)—may
be unaware of the existence of a statute-of-limitations defense
and may therefore “unwittingly acquiesce to such lawsuits,”
Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala.
1987). Second, “the passage of time not only dulls the
consumer’s memory of the circumstances and validity of the debt,
but heightens the probability that [the consumer] will no longer
have personal records detailing the status of the debt.”
Phillips v. Asset Acceptance, LLC, 736 F.3d 1076, 1079 (7th Cir.
2013) (quoting Kimber, 668 F. Supp. at 1487).
These same considerations support recognizing FDCPA
liability for filing time-barred claims on unscheduled debts in
26
bankruptcy. 2 Crawford, 758 F.3d at 1260-61. But see Nelson v.
Midland Credit Mgmt., Inc., No. 15-2984, 2016 WL 3672073, at *2
(8th Cir. July 11, 2016) (published opinion) (refusing to
“extend[] the FDCPA to time-barred proofs of claim” because the
Bankruptcy Code’s “protections against harassment and deception
satisfy the relevant concerns of the FDCPA”). Here, where the
proofs of claim provide enough information to determine the debt
is time barred, the first consideration is of particular
importance. An unsophisticated debtor reviewing a proof of
claim may be unaware of the statute-of-limitations defense and—
perhaps not appreciating the legal significance of even
accurately listed last-transaction and charge-off dates—may
nevertheless “acquiesce” to the claims.
While some courts have found the role of the bankruptcy
trustee in weeding out time-barred claims critical in
distinguishing the bankruptcy context from civil lawsuits, see,
e.g., Nelson, 2016 WL 3672073, at *2, I am not persuaded. At
best, a debt collector who files such a claim wastes the
trustee’s time. At worst, the debt collector catches the
trustee asleep at the switch and collects on an invalid claim to
2
As the debtors concede, their case might be different had
they scheduled these debts with the bankruptcy court, an action
that might be seen as an invitation to a creditor to file a
claim.
27
the detriment of other creditors and, in many cases, the debtor.
In either case, the debt collector misleadingly represents to
the debtor that it is entitled to collect through bankruptcy
when it is not.
Moreover, there is reason to doubt the efficacy of the
trustee as a vigilant steward of the debtor’s estate. See,
e.g., In re Edwards, 539 B.R. 360, 365 (Bankr. N.D. Ill. 2015)
(“Chapter 13 trustees in this district do not object to proofs
of claim based on statute of limitations defenses. This is not
surprising because objecting to claims based on affirmative
defenses would require trustees to examine the details of
virtually every unsecured proof of claim, which is simply
impracticable.”). Indeed, if trustees performed their duties
flawlessly, Atlas would have little incentive to engage in its
scheme.
Like filing a lawsuit on time-barred debt, Atlas’s alleged
debt-collection activity in this case is precisely the sort of
unfair and misleading practice that Congress intended the courts
to recognize as a violation. After the debtors entered
bankruptcy, Atlas bought their debts, or rather, as the bill of
sales said, “charged-off receivables.” J.A. 58, 132, 143. All
of these charged-off debts were more than five-years old, well
outside Maryland’s three-year statute of limitations.
Nevertheless, Atlas filed proofs of claim to recover the
28
unenforceable debts in the bankruptcy court. The relevance of
the statute of limitations was not lost on Atlas, which included
the following notice on two of the three proof-of-claim forms it
filed: “This proof of claim is being filed pursuant to 11 USC
Secs. 101(5), 501(a) and 502(b) as said claim may be outside of
the statute of limitations.” J.A. 55, 140. Section 502(b)
explains that if a claim is objected to, the court will allow
the claim “except to the extent that . . . such claim is
unenforceable against the debtor and the property of the debtor,
under any agreement or applicable law.” § 502(b)(1). In short,
Atlas knew exactly what it was doing—exploiting a weakness in
the bankruptcy system and preying on potential error to collect
on debts where it should not. The practice subverts a core
purpose of bankruptcy by diverting estate assets from the
creditors entitled to receive them.
Atlas rather stunningly argues that it is doing a public
service: “[B]ut for Atlas’ filing of its proofs of claim, those
debts would not be subject to discharge and at the conclusion of
Appellants’ chapter 13 cases, Atlas could restart collection
activity with respect thereto so long as it does not otherwise
violate the FDCPA.” Appellee’s Br. at 40. Really? While the
statement is literally true, the (unintended) possibility that
the time-barred debts will be disallowed and discharged hardly
justifies Atlas’s tactics. Moreover, that the debtors did not
29
schedule the debts is some evidence that collection efforts have
stopped. And it would not be surprising if they had; the time
for enforcement has passed, and the combination of the statute
of limitations and the FDCPA seriously limits what a debt
collector can do to recover old debts. Ideally, debtors would
remember all their old debts, realize they were time barred,
schedule them as disputed, and see that they were disallowed.
But the FDCPA asks what the least sophisticated consumer would
do, not the ideal one. Atlas’s conduct games the bankruptcy
process; it does not ensure its integrity.
Accordingly, I would hold that Atlas’s conduct constitutes
a violation of the FDCPA. Such a holding would not impose a
great burden on debt collectors. “[A] debt collector is not
liable in an action brought under the [FDCPA] if [it] can show
‘the violation was not intentional and resulted from a bona fide
error notwithstanding the maintenance of procedures reasonably
adapted to avoid any such error.’” Jerman v. Carlisle,
McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 576 (2010)
(quoting 15 U.S.C. § 1692k(c)). Atlas and other debt collectors
can avoid FDCPA liability by putting in place a reasonable
procedure to screen unscheduled, time-barred claims—if Atlas
already has such a procedure, it can prove it in the district
court.
30
II.
Because the majority determines that the FDCPA does not
reach Atlas’s conduct, it does not address the question whether—
if the FDCPA on its own terms would apply to the filing of time-
barred claims—the Bankruptcy Code nevertheless precludes such an
action. To determine whether two federal statutes are
compatible, we employ ordinary statutory interpretation
principles. See POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct.
2228, 2236 (2014). Because the circuits are split on this issue
and the arguments have been made extensively on both sides, I
explain briefly my position that the two statutes do not
conflict in this instance.
The Second and Ninth Circuits have concluded that the
Bankruptcy Code precludes certain FDCPA suits. Simmons v.
Roundup Funding, LLC, 622 F.3d 93, 95-96 (2d Cir. 2010)
(rejecting an FDCPA claim brought during the pendency of
bankruptcy proceedings for the filing of an inflated proof of
claim); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510-11
(9th Cir. 2002) (barring an FDCPA claim for post-bankruptcy debt
collection in violation of the discharge order). Both rely on
the comprehensive provisions and protections of the Bankruptcy
Code to hold that it leaves no room for FDCPA claims. Simmons,
622 F.3d at 96; Walls, 276 F.3d at 510.
31
The Third, Seventh, and Eleventh Circuits have rejected the
notion that FDCPA actions may not be brought in the context of
bankruptcy. Johnson v. Midland Funding LLC, Nos. 15-11240, 15-
14116, 2016 WL 2996372, at *6 (11th Cir. May 24, 2016)
(published opinion) (holding that the Bankruptcy Code does not
impliedly repeal FDCPA actions for filing proofs of claim on
time-barred debt); Simon v. FIA Card Servs., N.A., 732 F.3d 259,
274 (3d Cir. 2013) (permitting an FDCPA claim for the violation
of the Bankruptcy Code’s subpoena requirements); Randolph v.
IMBS, Inc., 368 F.3d 726, 730-31 (7th Cir. 2004) (comparing the
FDCPA and Bankruptcy Code and concluding they are compatible).
In the view of these courts, the statutes do not expressly
contradict one another, nor are they in “irreconcilable
conflict” because “any debt collector can comply with both
simultaneously.” Randolph, 368 F.3d at 730; accord Johnson,
2016 WL 2996372, at *5-6; Simon, 732 F.3d at 273-74; see also
Nat’l Ass’n of Home Builders v. Defs. of Wildlife, 551 U.S. 644,
662 (2007) (“While a later enacted statute . . . can sometimes
operate to amend or even repeal an earlier statutory
provision . . . , ‘repeals by implication are not favored’ and
will not be presumed unless the ‘intention of the legislature to
repeal [is] clear and manifest.’” (third alteration in original)
(quoting Watt v. Alaska, 451 U.S. 259, 267 (1981))).
32
I would side with the view of the Third, Seventh, and
Eleventh Circuits, at least on the facts of this case. Atlas
does not argue that the Bankruptcy Code expressly bars FDCPA
remedies. Instead, it contends the statutes are irreconcilable:
“[W]hat [the debtors] allege is prohibited by the FDCPA (the
filing of a proof of claim with respect to a ‘stale’ debt) is
expressly permitted by the Bankruptcy Code.” Appellee’s Br. at
34. But this argument is easily answered: Because the
Bankruptcy Code does not obligate a creditor to file a proof of
claim, a debt collector such as Atlas can comply with both
statutes by not filing unscheduled, time-barred proofs of claim.
See Johnson, 2016 WL 2996372, at *6; Randolph, 368 F.3d at 730. 3
This conclusion is buttressed by our holding, in a somewhat
different posture, that an FDCPA claim may be brought during
bankruptcy proceedings. Covert v. LVNV Funding, LLC, 779 F.3d
242, 246-48 (4th Cir. 2015). In Covert, debtors filed suit
under the FDCPA and MCDCA after the completion of their
bankruptcies, alleging that a creditor had unlawfully filed
proofs of claim without a debt-collection license. Id. at 245.
We found the claims barred by res judicata because the debtors
failed to raise them during the bankruptcy. Id. at 247-48.
3For similar reasons, I would hold that the Bankruptcy Code
does not preempt the MCDCA.
33
Because res judicata applies to unraised claims only if they
“could have been adjudicated in an earlier action,” id. at 246,
we necessarily determined that the debtors “could . . . have
brought their affirmative claims for damages [under the FDCPA
and MCDCA] during the bankruptcy process under Federal Rule of
Bankruptcy Procedure 7001(1), which provides that ‘a proceeding
to recover money or property’ may be brought as an adversary
action,” id. at 248. Similarly, I would hold that the
Bankruptcy Code does not preclude or preempt the filing of the
FDCPA and MCDCA claims in this case.
III.
Because I believe the debtors state a claim under the FDCPA
(and MCDCA), I would reverse and remand for further proceedings.
34