Supreme Court Issues Decision on Debt Collectors

Debt collectors are known to use a variety of scare tactics to force individuals into paying a debt. A recent Supreme Court case, however, issued a decision on how to define the role of debt collectors. In the case of Midland Funding LLC v. Johnson, the Court held that a debt collector who files a claim that is barred by the statute of limitation will be considered to have engaged in deceptive, false, or misleading conduct and therefore will not be found to have violated the federal Fair Debt Collection Practices Act.

The Case in Question

The case in question is Midland Funding LLC v. Johnson, which arose in 2014 after Aleida Johnson filed a civil lawsuit against Midland Funding LLC on the basis that Midland had violated applicable law when it filed a proof of claim in Johnson’s bankruptcy case for a credit card debt whose state statute of limitations had already expired. The district court held that Midland’s conduct did not violate the law, but the Eleventh Circuit Court of Appeals later reversed this decision. The Supreme Court ultimately reversed the Eleventh Circuit’s decision and found that the creditor’s action was not deceptive, false, or misleading.

The Supreme Court’s Opinion

The Supreme Court found that state law determines whether a right to payment exists. In accordance with the Supreme Court’s majority opinion, Midland Funding sill has a right to payment even after expiration of the statute of limitations period. As a result, the Supreme Court found that even if the statute of limitations expires, a claim still exists for the purposes of bankruptcy law. The Supreme Court also noted that this claim does not constitute an unconscionable means of collection and pointed out that in a bankruptcy proceeding claims resolution is frequently less strenuous for individuals than a collection lawsuit. Additionally, the Supreme Court’s majority opinion did not accept the argument that allowing these expired claims could harm debtors. As a result, the Supreme Court found that it was permissible for a debt collector to file a claim even if it is barred by the statute of limitations.

The Dissent’s Opinion in the Case

A dissent in this case written by Justice Sonia Sotomayor joined by Justice Ruth Bader Ginsburg and Justice Elena Kagan found that the purchaser of defaulted debts was contrary to the country’s bankruptcy practices. This dissent argued that the bankruptcy system will be significantly harmed by the minority’s opinion because debt collectors do not file these claims in good faith. The dissent also expressed concern over potential efforts by creditors to game the system and acknowledged the increased workload that would result. The dissent even went so far as to argue that filing a proof of for claim for debts that are barred by the statute of limitations is unconscionable.

Consult with a Seasoned Bankruptcy Lawyer

The various laws involved with the bankruptcy process are particularly difficult. Some individuals have argued that this recent Supreme Court opinion allows debt collectors to purchase time-barred claims and pursue payments on these debts. If you require assistance in navigating these issues or have questions about how bankruptcy works, consider contacting Attorney Jim A. Lyon for the assistance that you require.