Crawford v. LVNV Funding, LLC: the interplay between the Bankruptcy Code and the FDCPA.

• Author: Pollan, Adina L.
• Position: Fair Debt Collection Practices Act

Bankruptcy is not practiced in a vacuum. Attorneys can practice a wide variety of law--intellectual property, (1) transportation, (2) even criminal (3) --while appearing before a bankruptcy court. But there is no more overlap as between bankruptcy and collections law. Meanwhile, there is generally a separation between the applicability of the Bankruptcy Code and debt collection laws, such as the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. [section]1692, et seq. That changed with Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), petition for cert, filed (U.S. Jan. 15,2015) (No. 14-858).

Crawford is fairly banal when considering its application outside the bankruptcy forum. A debt-purchaser filed a proof of claim on a debt that expired by statute of limitation several years prior to the petition date. (4) As acknowledged by Crawford, (5) under the FDCPA, collection on a time-barred debt typically constitutes a violation unless there is a "bona fide error." (6) What was disconcerting with Crawford was that the court found the mere filing of a proof of claim constituted "collection activity" despite the automatic stay. (7) The court held:

The automatic stay prohibits debt-collection activity outside the bankruptcy proceeding, such as lawsuits in state court. It does not prohibit the filing of a proof of claim to collect a debt within the bankruptcy process. Filing a proof of claim is the first step in collecting a debt in bankruptcy and is, at the very least, an "indirect" means of collecting a debt. (8)

The debt-purchaser (9) then violated the FDCPA by filing a proof of claim on a stale debt.

In a footnote, the court declined to opine on whether the FDCPA is preempted by the Bankruptcy Code, noting the defendant did not make the argument. (10) The court referenced a split in authority regarding preemption. (11) This analysis is key because it accentuates the reason why the decision should have been resolved differently.

Further, there is a slippery slope of policy questions: If there is no preemption, do any actions taken in a bankruptcy forum constitute collection activity? Will the policy apply to all creditors, not merely debt collectors? If so, will it be applicable only to those represented by counsel? Will the procedure involve adversary proceedings or contested matters? Does filing a time-barred proof of claim also constitute a violation of the automatic stay, since such constitutes "collection activity"? Is the bankruptcy estate considered a "consumer" under the FDCPA? Must proofs of claim now include FDCPA-compliant language?

Preemption emphasizes the relationship between the Bankruptcy Code and nonbankruptcy issues. The Bankruptcy Code was created by Congress "to create a whole system under federal control which is designed to bring together and adjust all of the rights and duties of creditors and embarrassed debtors alike." (12) Aggrieved parties cannot use bankruptcy courts to achieve "through the back door what [they] cannot accomplish through the front door...." (13) Preemption exists so that parties cannot "circumvent the remedial scheme of the [c]ode under which Congress struck a balance between the interests of debtors and creditors...." (14)

The argument for preemption is particularly strong. "The FDCPA is designed to protect defenseless debtors and to give them remedies against abuse by creditors. There is no need to protect debtors who are already under the protection of the bankruptcy court, and there is no need to supplement the remedies afforded by bankruptcy itself." (15)

Because Crawford did not address preemption, the issue will likely reappear in future litigation. (16) Crawford identified four cases (17) supporting each position of preemption: Two "pro" preemption--Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010), and Walls v. Wells...