Chapter 13 Bankruptcy Debtor Required to Dispute Legally Unenforceable Proof of Claim

Supreme Court Holds that Debt Collector Who Filed a Claim in the Bankruptcy Court Barred by the Statue of Limitations Did Not Violate the Fair Debt Collection Practices Act, 15 U. S. C. §1692 et seq.

In Midland Funding, v. Johnson 2017 U.S. LEXIS 2949, Midland Funding filed a proof of claim which sought payment from from Johnson who had filed a Chapter 13 Bankruptcy Petition. Midland’s claim was for payment of an alleged debt that was ‘stale’ – that is more than six years had elapsed since the date of default. The debt was therefore unenforceable under the Statute of Limitations of the State in which Johnson lived.

The Fair Debt Collection Practices Act, 15 U. S. C. §1692 et seq., prohibits a debt collector from asserting any “false, deceptive, or misleading representation,” or using any “unfair or unconscionable means” to collect, or attempt to collect, a debt, §§1692e, 1692f.

“Johnson then sued Midland, claiming that its filing a proof of claim on an obviously time-barred debt was “false,” “deceptive,” “misleading,” “unconscionable,” and “unfair” within the meaning of the Fair Debt Collection Practices Act, 15 U. S. C. §§1692e, 1692f.”  Midland.  supra at 1

The Court’s decision turned on the Bankruptcy Code’s  definition of “claim”. Most people if asked to explain the meaning of the word claim when used in the sentence ‘Mary claimed that John owed her money’ would have no problem agreeing about the answer to the question. But the Justices of the United States Supreme Court are not most people. Their answers depend on the burdens they place on the parties before it, and when one of the parties has immense resources and the other has virtually none, the decision of the Court  is  – in the most meaningful use of the word – political.

The Bankruptcy Code provides in  pertinent part provides that  a claim is:

(A)  right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured ‘’. 11 USCS § 101

“Parsing was formerly central to the teaching of grammar throughout the English-speaking world, and widely regarded as basic to the use and understanding of written language. However, the general teaching of such techniques is no longer current.” Wikipedia

Wikipedia fails to note the quoted statement does not apply to lawyers and to courts.

The correct answer to the question whether Midland’s filing was a claim was both yes and no. The majority of the Midland Court concluded that Midland had a right to payment because under the law of the state where the debt arose a creditor continues to have a right to payment even  after the creditor has no right to go to court to collect the debt.

In her dissenting opinion, Justice Sotomayor wrote “The same debt buyers that for years filed thousands of lawsuits in state courts across the country have begun to do the same thing in bankruptcy courts—specifically, in cases governed by Chapter 13 of the Bankruptcy Code, which allows consumers earning regular incomes to restructure their debts and repay as many as they can over a period of several years.

It does not take a sophisticated attorney to understand why the practice I have described in this opinion is unfair. It takes only the common sense to conclude that one should not be able to profit on the inadvertent inattention of others. It is said that the law should not be a trap for the unwary. Today’s decision sets just such a trap.”

Midland Funding, supra, at  22


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