Earlier this week, the Supreme Court of the United States handed down a decision in a fascinating case — Midland Funding LLC v. Johnson — examining whether debt collectors who attempt to collect on expired debts during the bankruptcy process are violating the Fair Debt Collection Practices Act.
The case in question revolves around Johnson, an Alabama woman who filed for Chapter 13 bankruptcy protection back in 2014. During this time, Midland Funding, a debt collection firm, filed a claim seeking to recover $1,879 in credit card debt that was incurred by Johnson over ten years prior to her bankruptcy filing.
Johnson objected to the claim, arguing that Midland was prohibited from seeking repayment on the debt owing to Alabama law, which establishes a six-year statute of limitations for debt collection efforts. The presiding bankruptcy trustee agreed and the claim was ultimately dismissed.
Thereafter, Johnson filed a federal lawsuit against Midland, arguing that its efforts to collect on the expired debt were a violation of the FDCPA, which prohibits any attempts to recover debts through “unfair or unconscionable means,” or the making of “false, deceptive or misleading representation.”
Midland challenged the lawsuit and after a federal appellate court ruled that Johnson could proceed, the matter wound up before SCOTUS.
In a 5-3 decision (newly appointed Justice Neil Gorsuch did not participate), the court held that the lawsuit alleging a violation of FDCPA should not proceed, as debt collectors can attempt to collect on expired debt during the bankruptcy process.
The majority opinion, penned by Justice Stephen Breyer, first examined whether efforts like those undertaken by Midland were false, deceptive or misleading. Here, it was held that they were not, as bankruptcy law does indeed allow the filing of such claims.
As to whether these kinds of efforts are unfair or unconscionable, the opinion goes on to declare that bankruptcy trustees are vested with the authority to object to claims that are technically expired and therefore not eligible for repayment, which is exactly what transpired in Johnson’s case. This reality, the opinion declares, should mitigate anxiety about consumers unknowingly paying expired debts.
In a blistering dissent, however, Justice Sonia Sotomayor, joined by Justices Ruth Bader Ginsburg and Elena Kagan, contended that such practices by debt collectors were indeed unfair and unconscionable.
“Professional debt collectors have built a business out of buying stale debt, filing claims in bankruptcy proceedings to collect it, and hoping that no one notices that the debt is too old to be enforced by the courts,” she wrote.
It will certainly be fascinating to see the impact this has on bankruptcy cases going forward …
If you have questions or would like to learn more about the fresh start provided by bankruptcy, consider speaking with a skilled legal professional to learn more about your rights and your options.