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Tuesday, July 16, 2024 | Back issues
Courthouse News Service Courthouse News Service

Debt-Collection Dispute Faces High Court Hearing

(CN) - The U.S. Supreme Court on Tuesday agreed to decide whether people who have filed for bankruptcy can sue companies that attempt to collect debts that were not required to be paid back because of state statutes of limitations.

The case, an appeal from the 11th Circuit, was filed by Midland Funding, a subsidiary of Encore Capital Group, which was sued by an Alabama debtor named Aleida Johnson.

Johnson declared bankruptcy in 2014. Shortly thereafter, Midland Funding acquired Johnson's defaulted credit card account and attempted to collect a $1,879 debt she had incurred more than a decade earlier.

Under Alabama law, there is a six-year statute of limitations for debt to be collected.

Midland's claim against Johnson originated with Fingerhut Credit Advantage, and the date of the last transaction on her account was listed as May 2003.

Johnson objected to Midland's attempts to collect the debt and its filing of a "proof of claim," and the bankruptcy court disallowed it.

Johnson then sued Midland, alleging the filing of a proof of claim basically, a record of the debt and associated information on a time-barred debt violated the Fair Debt Collection Practices Act.

The district court granted Midland's motion to dismiss, holding that while its filing of a proof of claim violated the FDCPA, as Johnson had claimed, the application of the Act was precluded in this case by the later-enacted Bankruptcy Code, which allows creditors to file such claims.

The 11th Circuit reversed and remanded the case, finding that there is no irreconcilable conflict between the Act and the Code, and therefore, the FDCPA did apply.

Midland Funding filed a petition for a writ of certiorari, complaining that the 11th Circuit ruling conflicts with decisions of the Fourth, Seventh, Eighth Circuits, which found that the filing of a proof of claim for a time-barred debt in a bankruptcy does not violate the Act, and with a decision of the Ninth Circuit, in which it held that the Bankruptcy Code broadly precludes the application of the FDCPA.

As is their custom, the justices did not explain their rationale for taking up the case.

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