Midland Funding v. Johnson: an obviously stale claim in a Chapter 13 case
Aleida Johnson filed for Chapter 13 bankruptcy in Alabama in 2014. A debt buyer filed a claim for a $1,879.71 credit card debt whose last charge was more than ten years old, well past Alabama's six-year limit. On May 15, 2017, the Supreme Court held five to three that filing an obviously time-barred claim in bankruptcy is not a false, misleading or unfair practice under the FDCPA. The ruling does not reach collection lawsuits outside bankruptcy.
A public record, not a client of this firm. Everything on this page comes from the Supreme Court's opinions cited at the end. The consumer lost this case; we include it because it marks where the FDCPA stops. Usher Law Group did not represent anyone in this matter, we publish no results of our own, and nothing here predicts the outcome of any other case.
In March 2014, Aleida Johnson filed for personal bankruptcy under Chapter 13 in federal court in the Southern District of Alabama. Chapter 13 lets a person with regular income pay creditors over several years under a court-approved plan. Creditors who want to share in those payments file a proof of claim, a written statement of what they say they are owed.
Two months later, Midland Funding, LLC, a debt buyer, filed a proof of claim. It said Johnson owed a credit card debt of $1,879.71. It also said the last charge on the account was in May 2003, more than ten years before the bankruptcy.
Alabama gives a creditor six years to sue on a debt like this one. The claim was stale on its face. Johnson's lawyer objected. Midland did not respond, and the bankruptcy court disallowed the claim.
Johnson then sued Midland under the Fair Debt Collection Practices Act. Filing a claim on a debt that was obviously too old to enforce, she argued, was false, deceptive and misleading under 15 U.S.C. § 1692e and unfair and unconscionable under § 1692f.
Why the question mattered
Before this case, lower courts had held that a debt collector who knowingly sues on a time-barred debt in an ordinary collection case violates the FDCPA. The concern is simple. Most consumers do not know the statute of limitations is a defense, and many never answer the lawsuit.
The question in Johnson's case was whether the same rule applies in bankruptcy. The district court said the Act did not apply and dismissed her suit. The Eleventh Circuit reversed and held that it did. Three other courts of appeals, the Fourth, Seventh and Eighth Circuits, had gone the other way. The Supreme Court took the case to resolve the split.
What the Court did
On May 15, 2017, the Court reversed, five to three. Justice Breyer wrote for the majority. Justice Gorsuch did not take part.
- Not false or misleading. The Bankruptcy Code defines a claim as a "right to payment." Under Alabama law, as in many states, the creditor's right to payment survives after the time to sue runs out; what is lost is the remedy. The time limit is an affirmative defense to be raised after a claim is filed. So a proof of claim on an old debt is not false.
- The audience is different. Whether a statement misleads depends on who hears it. In Chapter 13, a trustee reviews claims and is expected to object to stale ones.
- Not unfair in this setting. The Court assumed, without deciding, that suing on a stale debt in an ordinary civil case is unfair. But in Chapter 13 the consumer starts the case, a trustee is available, the rules guide how claims are evaluated, and the process is less unnerving than a lawsuit. A disallowed claim is also discharged.
- Two statutes, one balance. Applying the FDCPA here would let ordinary courts second-guess the bankruptcy claims process and upset its balance of debtor protections and obligations.
Justice Sotomayor, joined by Justices Ginsburg and Kagan, dissented. She described debt buyers that, blocked from suing on stale debts in state courts, had turned to bankruptcy courts and filed large numbers of claims on debts too old to enforce, hoping no one would notice. Citing the Federal Trade Commission, she wrote that buyers pay close to eight cents on the dollar for debts under three years old and as little as two cents for debts over six years old. She noted that Midland and its parent company had entered a 2015 consent order with the federal government barring them from suing on time-barred debts. She would have held the practice unfair and unconscionable.
The majority expressly left open the standard for ordinary civil litigation. This was a consumer loss, and it was a narrow one.
What it means for you now
Federal Regulation F now bars a debt collector from suing or threatening to sue on a time-barred debt (12 C.F.R. § 1006.26(b)). It expressly does not apply to proofs of claim in bankruptcy. So the line Midland drew still holds: outside bankruptcy, suing on a stale debt is prohibited; inside a Chapter 13 case, the answer is an objection. Our page on zombie debt covers the time limits.
- In bankruptcy, review every claim. Look at the last payment or charge date on each proof of claim. Johnson's objection worked; the claim was disallowed.
- After bankruptcy, check your credit report. A discharged debt should not be reported as still owed. See bankruptcy reporting errors.
- Outside bankruptcy, do not ignore a lawsuit. The time limit is a defense only if you raise it, and the answer deadline is short. Read sued by a debt collector.
- Watch the one-year clock. An FDCPA claim for a suit or threat on a time-barred debt must be filed within one year of the violation (15 U.S.C. § 1692k(d)).
The FDCPA requires a collector found liable to pay the consumer's reasonable attorney's fees and costs. The 2015 federal orders the dissent mentioned are the subject of our story on the CFPB orders against Encore and PRA. State time limits are on our New York, New Jersey and Florida pages.
The pages this story points to
Zombie debt
Old debts, the time limits, and what a collector may and may not do.
Read →Bankruptcy reporting errors
Discharged debts that still show as owed on your report.
Read →NY Attorney General v. debt buyers
Judgments on expired debts, and more than 7,500 vacated.
Read →Sources. Midland Funding, LLC v. Johnson, 581 U.S. 224 (2017), No. 16-348, opinion and dissent (Cornell LII); opinion (Justia); 12 C.F.R. § 1006.26.
Common questions
Can a debt collector sue me on a debt that is past the statute of limitations?
No. Federal Regulation F says a debt collector may not sue or threaten to sue on a time-barred debt. Midland v. Johnson is about something narrower: filing a proof of claim in a Chapter 13 bankruptcy the consumer started. Regulation F's time-barred rule expressly does not apply to proofs of claim in bankruptcy.
What should I do about an old debt claim filed in my bankruptcy?
Object to it. In Johnson's case her lawyer objected, the debt buyer did not respond, and the bankruptcy court disallowed the claim. The Supreme Court relied on that process, and on the Chapter 13 trustee, to catch stale claims. Ask your bankruptcy lawyer or the trustee to review every claim filed.
Did the dissent say anything about how debt buyers operate?
Yes. Justice Sotomayor, writing for three Justices, cited Federal Trade Commission findings that debt buyers pay as little as two cents on the dollar for debts more than six years old, and that most consumers sued on debts never appear. She called the practice of filing stale claims in bankruptcy unfair and unconscionable. A dissent is not the law, but it describes the business the case was about.
Tell us what they did.
One conversation with an attorney, in your language. We tell you which laws the collector or the credit bureau broke, which deadline runs first, and what to save this week. If it is not a case we can take, we say so and tell you where to go.
(718) 484-7510The FDCPA and the FCRA require a company found liable to pay the consumer’s reasonable attorney’s fees and costs. Our fee arrangement is confirmed in a written retainer before we begin. English, Russian and Spanish in-house; an interpreter for any other language.