Category Archives: Automatic Stay and Bankruptcy

Filing a Stale Proof of Claim in a Bankruptcy Case May be Considered a Violation of the FDCPA

By Ryan C. Wood

What is considered a stale proof of claim? A stale proof of claim is one where a creditor files a proof of claim with the bankruptcy court and the underlying debt is barred from collection because it violates the statue of limitations. The statue of limitations is a law that provides a maximum period of time for someone to take action on a certain claim, whether it is collecting on a debt or filing a lawsuit against someone for certain violations. There is a maximum period of time set up because the longer the wait time, the less accurate the information will be. Evidence supporting the claim may be lost or people’s memories of the event may diminish. There is also the saying, “if you snooze, you lose.” If you sleep on your rights, or wait to long to claim them, you shouldn’t be surprised if you lost them. The statutes of limitations for different actions vary depending on the jurisdiction. You should familiarize yourself with your jurisdiction’s statute of limitation laws. The statute of limitations for a collection activity or breach of contract in California is 4 years. So if you do not collect on a debt before the 4 years is up you are barred from trying to collect on it later.

In a recent 11th Circuit Court of Appeals case, Crawford v. LVNV Funding, LLC, et al., No. 13-12389 (appealed from the US District Court for Middle District of Alabama, July 2014) the court ruled that LVNV violated the Fair Debt Collection Practices Act (“FDCPA”) by filing stale proof of claims in a Chapter 13 case. In this case, Stanley Crawford owed money to a furniture company who then sold the debt to LVNV. The last transaction occurred on October 26, 2001. Alabama’s statute of limitations is 3 years so the debt is time barred by October 2004. Mr. Crawford filed for Chapter 13 bankruptcy protection in February 2008. LVNV filed a proof of claim in the case even though the debt was deemed uncollectible. Mr. Crawford then filed an adversary proceeding against LVNV pursuant to Bankruptcy Rule 3007(b). Mr. Crawford claimed that LVNV routinely filed stale proof of claims in bankruptcy court and that the filing of these stale claims is a violation of the FDCPA. The bankruptcy judge in the case dismissed the adversary and the district court judge affirmed. Mr. Crawford then appealed this case to the appellate court where the judge ruled in Mr. Crawford’s favor.

The FDCPA was enacted to protect consumer’s rights. The FDCPA protects the consumers against debt collectors. “A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. §1692e. “A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Id. §1692f. The court looked at the facts in the case to determine if LVNV’s filing of a claim they know to be time-barred in bankruptcy court would be considered unconscionable, deceiving, or misleading towards the least-sophisticated consumer. See Jeter v. Credit Bureau, Inc., 760 F.2d 1168 (11th Cir. 1985). If LVNV tried to pursue a claim in state court, their case would have been dismissed because it was time-barred and those actions would violate the FDCPA. The judge in this case deemed that to be the case in bankruptcy court as well. If a proof of claim is not objected to in bankruptcy court, the claim is deemed valid and will be paid according to the plan. LVNV tried to slip the claim in the case and they were paid by the Chapter 13 trustee. A least-sophisticated consumer would not know to look and see if the claim was time barred. This was what LVNV was banking on. The court determined that LVNV’s actions a violation of the FDCPA.

Chapter 13 bankruptcy cases are complicated and it is advised you seek the advice of an experienced bankruptcy attorney to file your bankruptcy case. A bankruptcy lawyer is also the best person equipped to protect your rights and ensure the proof of claims filed with the court are not time-barred and stale.

How is My Automatic Stay Affected if I Filed For Bankruptcy More Than Once?

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The automatic stay is one of the most powerful tools in bankruptcy.  In fact, this is why most people file for bankruptcy protection.  The automatic stay stops all collection activity against you.  This means creditors can no longer call you, send you letters, sue you in court, enforce a judgment against you, garnish your wages, levy your bank account, and place a lien on your house, stop foreclosure proceedings and repossession of vehicles.  Basically, they cannot do anything to collect the debt against you unless they have a security interest in your property.  In the event there is a security interest in your property (like your house or car) the creditors would need to file a motion with the court to lift the automatic stay so they can start or continue the foreclosure or repossession procedures to protect their interest in your property.  Of course, it goes without saying that they can only foreclose or repossess your property if you have not been making payments each month on time.

The automatic stay will take effect as soon as you file for bankruptcy.  It is called the automatic stay because the stay goes into effect automatically – you do not need to do anything other than file your bankruptcy case.  Since this is such a powerful tool against your creditors you need to be sure that you do not abuse this tool.  If you file a second Chapter 7, 11, or 13 bankruptcy case after your first bankruptcy case was dismissed (due to not filing required paperwork, not paying your fees on time, not showing up for the mandatory meeting of creditors and other reasons) within a one year time period you only receive the automatic stay for the first 30 days of your second Chapter 7, 11, or 13 bankruptcy case.  After the 30 days are up you will no longer have protection of the automatic stay to.  In order to prevent the lapse of the automatic stay in your second bankruptcy case you would need to file a motion to extend the automatic stay.  Many of our clients have unfortunately been told by various entities or people to just file they bankruptcy case on their own to stop a foreclosure or eviction.  What they are not told are the consequences of filing multiple bankruptcy cases and how it effects the automatic stay.

If you file a third Chapter 7, 11, or 13 bankruptcy case within a one year period after the first two bankruptcy cases have been dismissed there will be no automatic stay in effect.  This rule was created to prevent people from abusing the automatic stay and continually filing bankruptcy cases to get the automatic stay with no intention of completing the bankruptcy petition or obtaining a discharge of their debts.  You would need to file a motion to impose the automatic stay in order to have the automatic stay imposed in your bankruptcy case.  If you have been advised to just file a bankruptcy case on your own you could be severely limiting your ability to protect your interests and ultimately discharge your debts when filing bankruptcy.