SCOTUS: Filing of Time-Barred Proof of Claim in Bankruptcy Does Not Violate FDCPA

by Jeff Sovern

That's the decision in Midland Funding, LLC v. Johnson. But the decision about asserting time-barred claims seems to be limited to bankruptcy matters.  As for whether the claim was deceptive or misleading, the Court noted that the proof of claim indicated on its face that it was time-barred.  The Court also wrote:

[T]o determine whether a statement is misleading normally "requires consideration of the legal sophistication of its audience." Bates v. State Bar of Ariz., 433 U. S. 350, 383, n. 37 (1977). The audience in Chapter 13 bankruptcy cases includes a trustee, 11 U. S. C. §1302(a), who must examine proofs of claim and, where appropriate, pose an objection, §§704(a)(5), 1302(b)(1) (including any timeliness objection, §§502(b)(1), 558). And that trustee is likely to understand that, as the Code says, a proof of claim is a statement by the creditor that he or she has a right to payment subject to disallowance . . . .

The implication is that time-barred claims can still be misleading when presented outside a bankruptcy proceeding in which they will be reviewed by a trustee, though the Court did not specifically address that question.  The Court also found that the proof of claim was not unfair or unconscionable, though it noted that that raised a closer question. It distinguished civil cases addressing the issue outside the bankruptcy context, without deciding that they were correct, again because of the availability of the trustee, among other grounds. The Court also noted the delicate balance involved in the debtor's protections and obligations under the Bankruptcy Code.

Justice Sotmayor's dissent cites writings by Professors Peter Holland and Katie Porter, two members of the consumer law professor community.