Down the Rabbit Hole: Crawford v. Lvnv Funding, Llc Upends the Role of the Fair Debt Collection Practices Act in Consumer Bankruptcy
| Citation | Vol. 66 No. 4 |
| Publication year | 2015 |
Down the Rabbit Hole: Crawford v. LVNV Funding, LLC Upends the Role of the Fair Debt Collection Practices Act in Consumer Bankruptcy
Brittany M. Dant
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"If I had a world of my own, everything would be nonsense. Nothing would be what it is because everything would be what it isn't. And contrary-wise; what it is it wouldn't be, and what it wouldn't be, it would. You see?"1
For decades courts have faced the issue of whether the Fair Debt Collection Practices Act (the FDCPA)2 applies to filing proofs of claims in consumer bankruptcy cases.3 Courts have historically been cautious
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of applying the FDCPA in the realm that the Bankruptcy Code4 covers.5 As such, the majority of courts faced with this question found the answer to be a resounding "no."6 However, in Crawford v. LVNV Funding, LLC,7 the United States Court of Appeals for the Eleventh Circuit turned the tide when it held that the filing of a proof of claim on a time-barred debt in Chapter 13 bankruptcy violated the FDCPA.8 The court determined that filing a proof of claim on a debt barred by the applicable statute of limitations was "unfair, unconscionable, deceptive and misleading" to the least-sophisticated consumer.9 In doing so, the court's decision created a circuit split.10 As a result, debtors in the Eleventh Circuit may recover certain damages under the FDCPA that are unavailable under the Bankruptcy Code.11 Furthermore, Crawford may significantly impact the practices of consumer debt collectors, which previously relied on a debtor's failure to object to proofs of claim under § 502 of the Bankruptcy Code12 to collect on debts that would be otherwise invalid under state law.13
Crawford v. LVNV Funding, LLC began on February 2, 2008, when Stanley Crawford filed a petition for relief under Chapter 13 of the Bankruptcy Code in the Middle District of Alabama.14 Crawford was indebted to Heilig-Meyers, a furniture company, for $2,037.99 on an account opened in the late 1990s.15 Heilig-Meyers charged off the debt in 1999; however, in September of 2001, Heilig-Meyers sold the debt to a consumer debt collection company associated with LVNV Funding,
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LLC (LVNV). On May 21, 2008, LVNV filed a proof of claim on the unsecured Heilig-Meyers debt in Crawford's bankruptcy case.16
The core issue with LVNV's proof of claim was that the last transaction on the Heilig-Meyers account took place on October 26, 2001. Due to Alabama's three-year statute of limitations on the enforcement of a debt, the time to collect the Heilig-Meyers debt ran in October of 2004, rendering the debt unenforceable in both state and federal court. Therefore, when LVNV filed its proof of claim, it did so on a debt where its recovery had expired four years earlier. Despite this, both Crawford and the bankruptcy trustee failed to object to LVNV's claim during the Chapter 13 proceeding, and LVNV was paid from the bankruptcy estate for the Heilig-Meyers debt. Crawford did not learn of the untimeliness of LVNV's claim until four years after the proof of claim was filed.17
In May 2012, Crawford objected to the enforceability of LVNV's claim.18 Crawford sought to recover damages and filed an adversary proceeding, listing three companies as defendants: LVNV, Resurgent Capital Services, L.R (Resurgent), and PRA Receivables Management, LLC (PRA). Crawford claimed that LVNV was in the business of purchasing portfolios of consumer debt owned by credit grantors; that Resurgent operated as a master servicer for LNNV; and that PRA was in the business of collecting consumer debts associated with LVNV's business practices.19 The basis of the adversary proceeding was Crawford's allegation that LVNV filed proofs of claim on stale, time-barred debts as a routine business practice in violation of the FDCPA.20
The bankruptcy court dismissed the adversary proceeding.21 The court relied on Simpson v. PRA Receivables Management, LLC (In re Simpson)22 to conclude the filing of a proof of claim in a consumer bankruptcy does not violate the FDCPA, even if the claim is time-barred.23 Crawford appealed the finding to the United States District Court for the Middle District of Alabama.24 However, the district court affirmed the bankruptcy court and held that a proof of claim filed on a
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debt barred by the statute of limitations does not qualify as a violation of the FDCPA.25 Crawford then appealed to the Eleventh Circuit.26 Analogizing a lawsuit filed on a time-barred debt to a proof of claim for a time-barred debt, the court held that filing a time-barred proof of claim is "an indirect means of collecting a debt" and is "unfair, unconscionable, deceptive, and misleading," rendering it a violation of the FDCPA.27 In a unanimous decision, the court reversed the district court's dismissal of Crawford's complaint and remanded the case for further proceedings.28
Prior to the FDCPA, consumer debtors had inadequate protective remedies under state and federal law.29 Enacted in 1977, the FDCPA is a subsection of the Consumer Credit Protection Act (the CCPA),30 and was Congress's response to overwhelming evidence of abusive, deceptive, and unfair practices implemented by debt collectors.31 The FDCPA was intended to balance the interests of consumers and debt collectors.32 In doing so, Congress sought to enact a scheme that would eliminate abusive debt collection practices, incentivize non-abusive debt collection practices, and most importantly, protect consumers.33 Courts utilize the FDCPA, in combination with other consumer-friendly statutes, to curb rampant abuse by consumer debt collection agencies.34
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The FDCPA applies solely to the conduct of debt collectors, as distinguished from the actions of creditors.35 It is a strict-liability statute construed in favor of consumers to fulfill its protective purpose.36 To recover under the FDCPA, a debtor must prove four elements: (1) the debtor is either a natural person injured by a violation of the FDCPA, or meets the definition of a consumer37 within the meaning of the FDCPA; (2) the debt38 arose out of a transaction that was entered into for personal, family, or household purposes; (3) the alleged violator is a debt collector; and (4) the debt collector has violated a provision of the FDCPA.39 However, an injured consumer need not show intentional conduct on the part of the debt collector.40 The FDCPA allows an individual who successfully proves a violation to collect his actual damages, additional damages up to one thousand dollars, the costs of the action, and reasonable attorney fees.41
Additionally, courts impose legal standards to determine whether the actions of a debt collector are false, deceptive, misleading, harassing or abusive, or an unfair practice.42 The standards to determine whether a consumer collector has violated the FDCPA are the "least-sophisticated consumer standard"43 and the unsophisticated but "reasonable consumer[]" standard.44 Under the least-sophisticated consumer standard,
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which is the most commonly used,45 the court asks whether the least-sophisticated consumer would have been deceived by the debt collector's conduct.46
Sections 1692e47 and 1692f48 of the FDCPA effect the purpose of protecting consumer debtors through several prohibitions on the behavior of consumer debt collectors.49 First, § 1692e prohibits a debt collector from using "any false, deceptive, or misleading representation or means" in connection with the collection of debts.50 Section 1692e also includes a non-exclusive list of sixteen ways a debt collector may violate the statute.51 Second, § 1692f prohibits a debt collector from using unfair or unconscionable means to collect a debt.52 These sections are central to serving the key purpose of the FDCPA and the CCPA, which is to eliminate practices that contribute to the number of personal bankruptcies.53
In contrast, the purpose behind the Bankruptcy Code is to place the debtor's property under the control of the court in order to distribute it equally among creditors.54 To do so, the Bankruptcy Code must "reconcil[e] competing claims of creditors to property of the debtor's bankruptcy estate."55 Courts have repeatedly found that the principal function of the Bankruptcy Code is to determine creditor's rights and distribute shares of property in a single collective proceeding.56
Under the Bankruptcy Code, a "claim" is the right to payment or the right to an equitable remedy for a breach of performance, if the breach
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gives rise to a right to payment.57 For a creditor to recover from a debtor's bankruptcy estate, the creditor must file a proof of claim.58 If a proof of claim is filed in accordance with the bankruptcy rules, it constitutes prima facie evidence of the validity and the amount of the creditor's claim.59 Once prima facie evidence of the creditor's claim is established, the burden shifts to the debtor to produce evidence sufficient to rebut the validity of the proof of claim.60 A proof of claim is deemed to be allowed unless a party in interest objects to the proof.61 After an objection to a claim is made, the bankruptcy court will determine the amount and enforceability of the claim.62
A debtor is deemed to have a consumer debt under the Bankruptcy Code if the debt in question resulted from the actions of an individual for the purpose of providing for that person, that person's family, or household.63 A debtor with consumer debt may apply for relief under Chapter 13 of the Bankruptcy Code,64 which allows an individual with a regular, steady income, whose debts do not exceed the statutory limits, to pay her debts and keep some or all of her property through a bankruptcy plan.65 A consumer debtor may also find relief under Chapters 7,66 11,67 and...
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