Academic journal article St. John's Law Review

Precluding Fdcpa Claims in Bankruptcy

Academic journal article St. John's Law Review

Precluding Fdcpa Claims in Bankruptcy

Article excerpt


In a recent year, $72.3 billion in consumer debt, consisting of credit cards, medical, utility, auto, and mortgage debt, was purchased by the expanding debt-buying industry.1 Debt buyers generally purchase this debt for "pennies on the dollar," but will then turn around and attempt to collect the full amount from the consumer.2 In doing so, debt buyers utilize abusive and illegal tactics, which include harassing consumers and their families.3

To protect consumers from such abusive practices, congress enacted the far-reaching and all-encompassing Fair Debt Collection Practices Act ("FDCPA")4 to regulate the ever- expanding debt collection industry.5 Congress sought to deter illegal debt collection activities by providing consumers with a private right of action against offending debt collectors.6

Yet, the application of the FDCPA in the context of bankruptcy is in dispute. Particularly, it is debated as to whether debtors in bankruptcy retain their private right of action under the FDCPA against debt collectors who have filed an improper proof of claim.7 In these contexts, the Bankruptcy Code arguably overlaps and conflicts with the FDCPA in terms of remedies offered and procedural aspects that debt collectors must abide by.8

For years, the majority of courts facing this issue, including the United States Court of Appeals for the Second and Eighth Circuits, have taken the position that consumer FDCPA claims are to be limited or precluded altogether as the supplementation of the FDCPA is unnecessary, even detrimental, to the Bankruptcy Code.9 However, the Eleventh Circuit, in departing from this trend and allowing consumer FDCPA claims, was motivated by the negative implications of allowing debt collectors to utilize certain provisions of the Bankruptcy Code to the disadvantage of unrepresented debtors.10

This Note seeks to offer additional justifications and expand upon the Eighth Circuit's intermediate approach in harmonizing both federal statutes by also extending certain exemptions with the FDCPA to apply to proofs of claim in bankruptcy. Part I examines the relevant legislative intent and procedural aspects of both the Bankruptcy Code and the FDCPA. Part II summarizes the various approaches that courts take to the problem and their rationale behind their decision. Part III considers several justifications for limiting consumer enforcement of the FDCPA in the bankruptcy context. Finally, Part IV proposes that, to synchronize both the FDCPA and Bankruptcy Code, courts should extend exemptions within the FDCPA to include proofs of claim and hold that filing a proof of claim for a stale debt, without misrepresentation and similar deceptive practices, does not constitute a violation of the FDCPA.

I. Legislative Intent and Procedural Aspects of the Bankruptcy Code and FDCPA

A.Bankruptcy Code

Although the Bankruptcy Code provides ample protection to debtors, it was not designed to eliminate abusive collection activities. Rather, Congress's intent was to design 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."11 Further, bankruptcy courts are the sole forum for asserting a proof of claim. Accordingly, the Bankruptcy Code provides for the procedural aspects of filing a proof of claim, objecting to it, and obtaining relief for any bad faith conduct.12

1. Purpose of the Bankruptcy Code Is To Adjust Rights of Creditors and Debtors Alike

The purpose of the Bankruptcy Code is to provide a neutral plane for both debtors and creditors to come together for a court-regulated resolution. This is accomplished by the automatic stay provision of the Bankruptcy Code, which operates as a freeze on creditor collection activity.13 By doing this, the Bankruptcy Code's automatic stay provision protects both debtors and creditors.

The automatic stay provision grants many benefits to the debtor. …

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