Alphonse D. Owens, Plaintiff-Appellant,
LVNV Funding, LLC, Defendant-Appellee. Tia Robinson, Plaintiff-Appellant,
eCast Settlement Corp., et al., Defendants-Appellees. Joshua Birtchman, Plaintiff-Appellant,
LVNV Funding, LLC, et al, Defendants-Appellees.
June 1, 2016
Appeal from the United States District Court for the Southern
District of Indiana, Indianapolis Division. No.
1:14-cv-02083, 1:14-cv-00713 - Jane E. Magnus-Stinson, Judge.
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 1:14-cv-08277 -
Manish S. Shah, Judge.
Wood, Chief Judge, and Bauer and Flaum, Circuit Judges.
of these consolidated cases, a debt collector filed a proof
of claim, defined as "a written statement setting forth
a creditor's claim, " Fed.R.Bankr.P. 3001(a), for a
time-barred debt in a Chapter 13 bankruptcy proceeding. After
successfully objecting to the proof of claim, the debtor sued
the debt collector in federal court, alleging that the act of
filing a proof of claim on a stale debt violates §§
1692e and 1692f of the Fair Debt Collection Practices Act, 15
U.S.C. §§ 1692 et seq.
("FDCPA"). In each case, the district court granted
the defendant debt collector's motion to dismiss. For the
reasons that follow, we affirm those decisions.
three consolidated cases currently before us are similar in
material respects. In each case, a debtor filed for
bankruptcy under Chapter 13 of the Bankruptcy
Code. The debtor was represented by counsel
throughout the proceedings. In addition, a trustee was
assigned to the case.
the bankruptcy proceedings, a debt collector submitted a
proof of claim for a "stale" debt, or a debt for
which the statute of limitations had expired. The debt
collector was not the original creditor, but instead a
professional debt buyer who had purchased the stale
obligation at a fraction of the debt's face value. As
required by Federal Rule of Bankruptcy Procedure 3001, the
proof of claim filed by the debt collector accurately noted
the origin of the debt, the date of the last payment on the
debt, and the date of the last transaction.
that the debt was time-barred and thus subject to an
affirmative defense, the debtor objected to the claim, which
was disallowed and eventually discharged. Shortly thereafter,
the debtor brought a separate suit in federal court against
the debt collector, alleging that the act of filing a proof
of claim on a time-barred debt constituted a false,
deceptive, misleading, unfair, or unconscionable means of
collecting a debt in violation of §§ 1692e and
1692f of the FDCPA.
case, the district court granted defendant's motion to
dismiss under Federal Rule of Civil Procedure 12(b)(6). Two
of the decisions-Owens and
Birtchman-involved the same defendant and were
decided on the same day by the same district court judge. In
those decisions, the district court rejected the argument
that the act of filing a proof of claim was deceptive or
unfair, noting that the defendant was entitled to do so under
the Bankruptcy Code. The district court also observed that
defendant's proof of claim was complete, accurate, and
provided the date of the final payment; as such, the court
concluded that the proof of claim was not false or
Robinson, the district court likewise dismissed the
plaintiff's complaint under Rule 12(b)(6), holding that
filing a proof of claim on a time-barred debt was not a
deceptive, false, or misleading debt collection practice. The
plaintiff then filed an amended complaint in which she added
additional allegations under the FDCPA. The district court
dismissed the amended complaint as well, holding that the
confirmation of plaintiff's bankruptcy plan barred her
FDCPA claims under the doctrine of res judicata. The
plaintiffs in all three cases appeal.
contend that the district courts erred by granting
defendants' motions to dismiss. They maintain that filing
a proof of claim on a stale debt misleads the debtor about
the legal status of the debt and thus violates the
FDCPA's prohibition against false, deceptive, misleading,
unfair, and unconscionable debt collection
practices. Their argument has two components. First,
plaintiffs allege that the act of filing a proof of claim on
a time-barred debt is inherently misleading because
"claim" is defined to include only legally
enforceable obligations. In other words, plaintiffs contend
that because the claim process in bankruptcy is reserved for
enforceable obligations, filing a proof of claim on a stale
debt falsely cloaks the underlying obligation with an air of
legitimacy. Second, plaintiffs contend that filing a stale
proof of claim is deceptive because, in practice, the debtor
and his attorney sometimes fail to object to the claim,
allowing the debt collector to collect on an unenforceable
obligation. Plaintiffs rely on our case law holding that the
FDCPA prohibits creditors from filing lawsuits to collect on
stale debts. Phillips v. Asset Acceptance, LLC, 736
F.3d 1076, 1079 (7th Cir. 2013). They allege that the
rationale for this holding also applies in the bankruptcy
review a dismissal under Rule 12(b)(6) de novo, accepting
well-pleaded allegations in the complaint as true and drawing
all reasonable inferences in the light most favorable to the
plaintiffs. Parish v. City of Elkhart, 614 F.3d 677,
679 (7th Cir. 2010).
Definition of "Claim"
initial matter, we disagree with plaintiffs' assertion
that the term "claim" includes only legally
enforceable obligations, and that filing a proof of claim on
a stale debt is therefore per se illegal under the FDCPA. The
Bankruptcy Code broadly defines a "claim" as 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 U.S.C. § 101(5)(A). It
would be strange to interpret "claim" as excluding
legally unenforceable obligations when two of the enumerated
examples-"contingent" and "unmatured"
claims- afford the creditor no collection right under state
law when the claim is filed with the bankruptcy
court. See, e.g., In re Chi., Milwaukee, St.
Paul & Vac. R.R. Co., 6 F.3d 1184, 1192 (7th Cir.
1993) (noting that contingent claims exist even before a
cause of action has accrued).
a "claim" is defined as a right to payment. §
101(5)(A). In most jurisdictions, including Illinois and
Indiana, the expiration of the statute of limitations period
does not extinguish the underlying debt. See Mascot Oil
Co. v. United States, 42 F.2d 309, 311 (Ct. CI. 1930),
aff'd, 282 U.S. 434 (1931) ("[T]he statute
of limitations or other bar against a remedy for the
collection of a debt does not extinguish the liability
therefor."); Donaldson v. LVNV Funding, LLC, 97
F.Supp.3d 1033, 1039 (S.D. Ind. 2015) ("It is true that
[the creditor] cannot file a lawsuit, but it is the law in
Indiana that the debt is still owed. The statute of
limitations does not extinguish the debt, it merely limits
avenues of collection."); Fleming v. Yeazel, 40
N.E.2d 507, 508 (111. 1942) ("[T]he statute of
limitations controls the remedy for recovery of the debt, but
the debt remains the same as before, excepting that the
remedy for enforcement is gone." (citation omitted)). In
other words, a time-barred debt is still a debt, even if the
creditor cannot file a collection suit. See Pearl-Phil
GMT (Far E.) Ltd. v. Caldor Corp., 266 B.R. 575, 581
(S.D.N.Y. 2001) ("Thus, under the Code, a right to
payment need not be currently enforceable in order to
constitute a claim."). We have also held that the fact
that the statute of limitations has run does not mean that
all avenues of collection are prohibited. See McMahon v.
LVNV Funding, 744 F.3d 1010, 1020 (7th Cir. 2014)
(holding that it is not "automatically improper for a
debt collector to seek re-payment of time-barred debts"
so long as the debt collector does not use deceptive
practices). Implicit in this holding is the understanding
that a creditor with a stale debt retains some right to
payment, even if recourse is only grounded in the
debtor's moral obligation to pay. Id. (observing
that "some people might consider full debt re-payment a
moral obligation, even though the legal remedy for the debt
has been extinguished").
a "claim" in bankruptcy is "more extensive
than the existence of a cause of action that entitles an
entity to bring suit." In re Keeler, 440 B.R.
354, 362 (Bankr. E.D. Pa. 2009) (citing In re Remington
Rand Corp., 836 F.2d 825, 831-32 (3d Cir. 1988)); In
re Grossman's, 607 F.3d 114, 121 (3d Cir. 2010)
(holding that a "claim" can exist in bankruptcy
notwithstanding an inability to commence an action under
state law at the time of filing). Further support for this
interpretation comes from the claim allowance process set
forth in the Bankruptcy Code, which has been described as a
"sifting process." Gardner v. New Jersey,
329 U.S. 565, 573 (1947); see also Travelers Cas. &
Sur. Co. of Am. v. Vac. Gas & Elec. Co., 549 U.S.
443, 449 (2007) (describing the claim allowance process).
Once a debtor files for bankruptcy, a bankruptcy estate is
created that consists of "all legal or equitable
interests of the debtor ... ." 11 U.S.C. §§
541(a)(1); 1306(b). A creditor who wishes to collect on a
debt may file a proof of claim, or "a written statement
setting forth a creditor's claim." Fed.R.Bankr.P.
3001(a); Travelers, 549 U.S. at 449 ("When a
debtor declares bankruptcy, each of its creditors is entitled
to file a proof of claim ... ."). A proof of claim
"constitute[s] prima facie evidence of the validity and
the amount of the claim, " but not all claims are entitled
to payment. Fed.R.Bankr.P. 3001(f). Importantly, the
bankruptcy court must, upon an objection by a party in
interest, disallow any claim that "is unenforceable
against the debtor ... under any agreement or applicable
law[.]" 11 U.S.C. § 502(b)(1). Furthermore, the
Code specifically enumerates statutes of limitation as one
means of proving the unenforceability of a claim. § 558;
see also In re Keeler, 440 B.R. at 360
("Therefore, if as of the date of the debtor's
bankruptcy filing a creditor's claim was barred by the
applicable statute of limitations, then the claim must be
disallowed upon objection by a party in interest.").
the Bankruptcy Code contemplates that creditors will file
proofs of claim for unenforceable debts-including stale
debts-and that the bankruptcy court will disallow those
claims upon the debtor's objection. Indeed, filing a
proof of claim allows the debt to be processed in the
bankruptcy proceeding, which is intended to be
all-encompassing. In re Am. Reserve Corp., 840 F.2d
487, 489 (7th Cir. 1988) ("The principal function of
bankruptcy law is to determine and implement in a single
collective proceeding the entitlements of all
concerned."); In re Glenn, 542 B.R. 833, 841
(Bankr. N.D. 111. 2016) ("Above all, bankruptcy is a
collective process, designed to gather together the assets
and debts of the debtor and to effect an equitable
distribution of those assets on account of the debts. The
more participation there is; the better this process
works." (citing Levit v. Ingersoll Rand Fin.
Corp., 874 F.2d 1186, 1194 (7th Cir. 1989)); 1 Norton
Bankr. L. & Prac. 3d § 3:9 (2016) ("A
fundamental principle of the bankruptcy process is the
collective treatment of all of a debtor's creditors at
one time."). In fact, sometimes even Chapter 13
debtors-such as plaintiff Owens-list stale debts in the
schedule of unsecured debts that they file with the
bankruptcy court. This is because debts that are not brought
to the bankruptcy court's attention (either by the debtor
or by the creditor who files a proof of claim) will not be
discharged, see 11 U.S.C. § 1328(a), and a debt
that is not discharged remains collectible, although the
avenues for collection are limited. See McMahon, 744
F.3d at 1020.
true that debtors may fail to object to a proof of claim for
a stale debt. When that occurs, the debt becomes part of the
confirmed bankruptcy plan and the debtor is required to pay a
portion of it. To reduce the risk of this outcome, creditors
are required to include details about the status and origin
of the debt on the proof of claim form. Fed.R.Bankr.P.
3001(c)(3). The most recent revision to the Federal Rules of
Bankruptcy Procedure explains:
Because a claim [based on consumer credit debts] may have
been sold one or more times prior to the debtor's
bankruptcy, the debtor may not recognize the name of the
person filing the proof of claim. Disclosure of the
information required [under Rule 3001(c)(3)] will assist the
debtor in associating the claim with a known ...