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Spokeo, Activist Courts, and Consumer and Debt Law

People involved in debt and consumer law have heard a lot about “Spokeo” in the past few years, and they’re going to hear more. Spokeo is a wolf in sheep’s clothing, a Supreme Court decision purporting to limit the Judicial system’s ability to override the functions of the other branches of government, but actually itself a vast usurpation of that power. It has been used to gut consumer and debt law protections enacted by Congress, and it will increasingly be used to do so. I expect it to be extended to state courts and jurisdiction as well.

So, what is “Spokeo” and how does it usurp legislative power? We discuss these issues and suggest some possible approaches in the following article.

Spokeo” is the way many refer to a case and the Supreme Court decision that decided it. The case was Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).  Spokeo, Inc. was a business that compiled information on essentially everybody and made it available to people searching it. Some of the information was free, and some was only available upon payment (not a distinction relevant to the case). It disseminated information on creditworthiness and lifestyle and general biographical information, and its reporting on creditworthiness (allegedly) brought it within the reach of the Fair Credit Reporting Act (FCRA).[1]

In the case of Robins (the plaintiff in the suit), Spokeo reported that he was in his mid-fifties, employed, affluent and married – all of which Robins alleged was false. Robins claimed the information had hurt his attempt to obtain employment. Robins brought suit under the FCRA.[2]

The Supreme Court held (essentially) that he had not alleged a “concrete, actual injury.” Probably every single person reading this article intuitively knows how false this holding was, in reality.

The Court based its analysis on Article III of the Constitution, which limits judicial action to actual “cases and controversies.” They pointed out a fundamental concept of the law, which is that courts are only empowered to hear cases involving real people with real adversary interests – otherwise people would make up cases to test abstract limits of the laws as a sort of judicial review. To keep the Judicial branch in its own lane, courts have determined that, to satisfy Article III, a plaintiff must show (1) injury in fact, (2) causation, and (3) redressability (ability of a court order to “solve” the wrong that has been committed. With respect to the injury requirement, the injury must be (1) “concrete and particularized” and (2) “actual or imminent.” A “bare procedural violation” of a statute is not enough: there must be some harm already, or some harm must be imminent.[3]

Article III’s “Standing” Requirement and the Federal Court’s Attack on Statutory Consumer Rights

To satisfy Article III, a plaintiff must show (1) injury in fact, (2) causation, and (3) redressability. With respect to the injury requirement, which the Supreme Court discussed at length in its seminal opinion in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the injury must be (1) “concrete and particularized” and (2) “actual or imminent.” A “bare procedural violation” of a statute is not enough.

All of these requirements are designed to insure that a litigant is protecting his or her own specific rights and not some theoretical general or public right which would be akin to judicial review.

In Spokeo, the Supreme Court seemed to take the position that the “harm” or injury Robins alleged was a procedural violation – like he was some purist offended by Spokeo’s carelessness in keeping information. The harm, however, was crystal clear and not at all theoretical or akin to judicial review: Spokeo had wrong information about Robins. Having and disseminating false information about him WAS the wrong, and it was also the very “harm” that the FCRA was designed to prevent. The fact that the incorrect information was also damaging to him was irrelevant to the Article III analysis, though of course it would be relevant to the amount of damages he should have gotten.

The Court was not unaware of this; its decision was a blatant attack upon civil and consumer rights, many of which are quite difficult to quantify and are intangible. The Court is hostile to these rights, and Spokeo was a usurpation of the legislature’s Constitutional power to create them and give people the right to enforce them. Thus it is a lasting monument to the hypocrisy of the current Supreme Court. There will likely be many more over the coming years. The Spokeo decision has been used to attack civil and consumer rights from the instant it was written, most notably, perhaps, the Telephone Consumer Protection Act (TCPA), but what will be the harm to a debt litigant under the FDCPA of the debt collector failing to publish warnings in conspicuous print if the consumer sees the warning anyway? What’s the harm of making harassing phone calls late at night? The Supreme Court has put itself in the business of evaluating and quantifying those harms, while the FDCPA made them per se violations. The courts will use Spokeo to attack the FDCPA as well.

State Law Applicability of Spokeo

Even a casual reading of Spokeo will reveal that the Court pretended to be careful to limit its ruling to federal courts. There is no doubt the state courts will follow, however. Note the reasoning, applicable to every state, in the following paragraph of a New York State opinion. I include the links so you can more conveniently track down the cited cases:

“Under the common law, there is little doubt that a `court has no inherent power to right a wrong unless thereby the civil, property or personal rights of the plaintiff in the action or the petitioner in the proceeding are affected'” (Society of Plastics Indus. v County of Suffolk, 77 NY2d 761, 772 [1991], quoting Schieffelin v Komfort, 212 NY 520, 530 [1914]). Related to this principle is “a general prohibition on one litigant raising the legal rights of another” (Society of Plastics, 77 NY2d at 773). Thus, if the issue of standing is raised, a party challenging governmental action must meet the threshold burden of establishing that it has suffered an “injury in fact” and that the injury it asserts “fall[s] within the zone of interests or concerns sought to be promoted or protected by the statutory provision under which the [government] has acted” (New York State Assn. of Nurse Anesthetists v Novello, 2 NY3d 207, 211 [2004]).[2] The injury-in-fact requirement necessitates a showing that the party has “an actual legal stake in the matter being adjudicated” and has suffered a cognizable harm (see Society of Plastics, 77 NY2d at 772) that is not “tenuous,” “ephemeral,” or “conjectural” but is sufficiently concrete and particularized to warrant judicial intervention (Novello, 2 NY3d at 214; see Spokeo, Inc. v Robins, 578 US __, __, 136 S Ct 1540, 1548 [2016]).

MENTAL HYGIENE v. Daniels, 33 NY 3d 44, 50 – (NY App. 2019).

What to Do

 

People familiar with my writing and videos will perhaps recognize that some of the language in Mental Hygiene is familiar. We argue the issue of standing all the time at a more basic level: a debt collector must show that it owns the right to sue – the injury in fact requirement is a constitutional necessity that the plaintiff show it owns the debt in question. Provided you dispute the debt collector’s ownership, which I have said every defendant should do in every case.

If you are alleging a violation of the FDCPA or the FCRA, you must obviously take some care to allege actual harm closely connected to the right you claim was violated.  If they are suing you for debt beyond the statute of limitations, their unfair collection practice has caused you emotional distress, the expense of hiring a lawyer or seeking help, the time reading, thinking about and responding to the suit, the price of paper in filing your answer or responsive motion, postage incurred in providing notice to the debt collector, gas in taking the suit to be filed, and whatever else you can think of.

The courts are extremely aggressive in TCPA litigation, where they have held that “a single emailed fax” was not a cognizable harm even though Congress said it was, and even though even a single emailed fax would require some time to read and elicit some emotional response. If ONE emailed fax isn’t enough despite the fact that Congress made it so, then what about two? Or twenty-two? Expect the courts to apply this type of analysis routinely, and state your damages in as lurid and concrete a fashion possible.

Many state consumer protection laws are subject to what is called “strict liability” and do not require any harm at all – even a mere “technical” violation creates liability. The Supreme Court is willing to recognize that a trespasser, by stepping one foot across the line, has caused cognizable damage even though it may not be seen, felt, or even exist at all – it’s a legal wrong (to a property interest most often held by the wealthy). Will it see deceptive sales language that did not deceive a consumer as a violation in the same way? I believe a careful litigant should consider alleging shock and outrage, perhaps a call to a lawyer  or at least photocopying expense – something, anything – to show actual harm until some theoretical limitation has been placed on the courts’ “discretion” to reconsider and reevaluate damages determined by the legislature. Spokeo abandoned the principle of Judicial limitation.

[1] Among other things, the FCRA states that “[a]ny person who willfully fails to comply with any requirement [of the Act] with respect to any [individual] is liable to that [individual]” for, among other things, either “actual damages” or statutory damages of $100 to $1,000 per violation, costs of the action and attorney’s fees, and possibly punitive damages. § 1681n(a).

[2]Apparenty Robins did not dispute his “report” (and perhaps he couldn’t because of the nature of Spokeo) and sue under the provisions provided by that. Instead, he seems to have alleged a failure of Spokeo to use the required care to obtain information. This may have been a litigation decision based on the attempt to bring the claim as a class action, which requires “commonality” of legal issues among the class members. If so, it was the wrong decision for Robins’s individual chances, as it turned out.

[3] “Imminence” has created some interesting legal issues not important here. The courts have held that an enacted law may create imminent harm, but they have also held that where the executive has renounced enforcement of the law, the harm is not imminent.

FDCPA and Bankruptcy

There was an issue regarding whether the FDCPA would apply to bankruptcy proceedings. In particular, this was fueled by the fact that the debt buyers are flooding the bankruptcy proceedings with debts beyond the statute of limitations. They are uncollectible (if objected to) in bankruptcy, but is making such a frivolous claim a violation of the FDCPA?

I thought so and argued so in various materials. The Supreme Court found otherwise, signaling the current court’s hostility to real people and tendency to bootlick the powerful.

Two Supreme Court Cases Attacking Fair Debt Collection Practices Act

The Supreme Court has recently damaged debt defendants’ rights with two very important decisions, one allowing debt collectors to bombard the bankruptcy courts with outdated claims, and the other holding that junk debt buyers are not debt collectors under one important definition of the Fair Debt Collection Practices Act (FDCPA) These rulings may have changed the landscape of defense, but one thing is clear: you need to know your rights more now than ever. Pro se defense may be the only kind of debt defense you can get anymore.

Pro Se Defense

Let’s start with what “pro se defense” is. Pro se means representing yourself in a lawsuit. This will save a tremendous amount in legal fees, but it ALSO means taking on the burdens and risks of doing the defense yourself. These burdens and risks are not small, and I’ve always called hiring the right lawyer the “gold standard” of defense. But in most debt cases people can handle their own defense because the law is not complicated and the cases are document, rather than witness, intensive. Pro se defense even has some significant advantages in the debt law context.

The recent Supreme Court rulings are going to force more people to take a more active role in their defense.

Who is a Debt Collector

In Henson et al. v. Santander Consumer USA, Inc., No. 16349 (Slip Op. 6-12-17), the Supreme Court ruled that junk debt buyers are not“debt collectors” under one provision of the Fair Debt Collection Practices Act (FDCPA). I discuss that case, its impact, and what action people need to take regarding it, in my article and video, “Who Is a Debt Collector – Supreme Court Tries to Destroy the Fair Debt Collection Practices Act and what to Do about that.” In general, the effect of Santander is to make it more difficult to establish that a junk debt buyer is a debt collector, and it may signify that the Supreme Court would not let you sue junk debt buyers under the FDCPA at all.

Santander is going to make it more difficult for you to get a lawyer to defend you in a debt case – and more expensive if you can get one. That’s because the FDCPA applies only to debt collectors and gives you certain counterclaims, and certain defenses, that make defending you easier. The FDCPA also includes a “fee-shifting” provision which allows a consumer to make a debt collector pay for most of the time a lawyer spends on a case. These things – ease of defense and a rich company to pay fees – make FDCPA cases attractive to lawyers. Take away the FDCPA, and the lawyers are going to have to charge more – a LOT more. And they simply won’t take as many cases because they’re harder. This means that debt law defendants, already drastically underrepresented, are going to find it much more difficult to hire lawyers.

The decision in Santander threatens to neutralize the FDCPA and let junk debt buyers – who now make up the vast majority of debt collectors – run completely wild. They will be much freer to abuse, deceive, harass – in short, all the tricks that brought about the FDCPA in the first place because the laws regulating them will have been predominantly removed. At the same time it makes getting a lawyer much more difficult, the decision in Santander will likely result in a large number of new and wrong lawsuits. HOWEVER, Santander does not negate any (or very few, anyway) of your defenses in a debt law case, and it does not reduce the burden of proof for debt collectors. You can still win, in other words, but you very well may have to do it yourself.

Bankrupts Beware

Bankruptcy is one refuge debtors have from debt collectors. In general, you can file bankruptcy and force all your creditors to stop contacting you and, instead, file their claims in your bankruptcy action. In theory, the court will then either grant those claims or deny them according to what is right. The dirty little secret of bankruptcy, though, is that if claims are not disputed, they are generally granted. In bankruptcy cases brought by poor people (you can bet Donald Trump never had this problem), the lawyers representing the bankrupts have little incentive to dispute wrongful claims. There’s a U.S. trustee who is supposed to oversee the process and protect the bankrupt and legitimate creditors from bad claims, but guess what?

They usually don’t.

So bad claims get allowed. In most bankruptcies, allowing a bad claim means that it’s going to get paid (eventually) by the person filing for bankruptcy.

Junk Debt Buyers Make Things Worse

Enter the junk debt buyers. They buy vast amounts of LONG overdue debt – debt far beyond the statute of limitations – and file claims in bankruptcy cases. This bogs the bankruptcy courts and everyone involved down, and as a practical matter results in people paying billions of dollars to debt collectors who have no real right to collect. This crushes the people who declared bankruptcy and rips off the legitimate creditors whose debts get paid at a lower rate.

Some debtors were suing debt collectors under the FDCPA for filing claims in bankruptcy that were beyond the statute of limitations. Because of the FDCPA’s fee-shifting provision, the debtors’ bankruptcy lawyers had at least some financial incentive to bring these claims and dispute unenforceable claims. They were doing so as part of the bankruptcy proceedings, and the debtors were also bringing suit outside of the bankruptcy context as well.

The Supreme Court negated the FDCPA’s protection with its holding in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17). In that case, the Court ruled that debt collectors could file claims in bankruptcy that they know are unenforceable in an ordinary court (and would violate the FDCPA if filed there).  For a fuller discussion of that case, look at my article and video, “Bankrupts Beware, FDCPA No Longer Applies – Opening the Floodgates to Bad Claims.”

What the Midland Funding case means, in practical effect, is that even if you’re in bankruptcy you’re going to have to know and protect your own rights. Your lawyer has VERY LITTLE incentive to challenge bad claims, and likewise the U.S. Trustee has VERY LITTLE time (or incentive) to do it. If the claims are allowed, you will be stuck paying them in all likelihood. That means that even if you file for bankruptcy you must be prepared to defend yourself against the debt collectors. You will AT LEAST need to know your rights, and you will very probably have to defend them pro se despite having a bankruptcy lawyer.

Conclusion

 

The net result of the Supreme Court’s decisions in Henson and Santander is that debt defendants will get much less help from lawyers. These cases are still possible to defend against and win – they’re as easy as any law gets, probably. Because so many fewer cases will in fact be litigated, your chances of winning have actually probably gone UP: it is even less profitable for debt collectors to fight now than it used to be because they will have so many more easy wins. But you are more likely to have to do it yourself now than ever.

Make it hard for them.

Supreme Court Attacks FDCPA – Erodes Definition of Debt Collector

The Supreme Court has recently issued rulings very harmful to people with debt collectors harassing or suing them. Its ruling in Henson et al. v. Santander Consumer USA, Inc., No. 16349 (Slip Op. 6-12-17) (“Santander”), seems to try to negate application of the Fair Debt Collection Practices Act (FDCPA) to the vast majority of debt collectors. I expect this decision will make it far more difficult for debt defendants to obtain legal representation and will cause debt collectors to engage in more deceptive, dishonest and abusive behavior.

Fair Debt Collection Practices Act

When Congress passed the FDCPA, the corruption and destructiveness of debt collectors were so rampant that debt collection was considered a threat to the American way of life. The FDCPA was accordingly designed to prevent fraud, deception and unfairness in general in the collection of debts, with Congress going to so far as to name numerous specific actions as “per se” violations of the Act but also to include the more general description of “unfair” debt collection practices. The reason for identifying numerous specific practices, as well as including the more general rule, was to prevent debt collectors from changing the forms their actions took without changing what they were basically doing.

The Supreme Court has just reduced that Congressional intent to a farce, applying just half of the statutory definition of “debt collector” to a case and finding that, under that half of the definition, junk debt buyers were not debt collectors.

Real-Life Debt Collection

What happens in most debt collection is that creditors sell charged-off debt to debt buyers who exist entirely to collect that money by hook or by crook. Instead of hiring debt collectors to collect on debts and then paying them out of the proceeds, the creditors now get their money first and let the debt collectors take their money from the debtors. All that has happened is that nominal ownership of the debt has changed. In other words, debt collectors have assumed a different form to pursue the very same activities.

Henson et al. v. Santander Consumer USA, Inc.

The Supreme Court has said that it would not allow parties to elevate form over substance and evade the impact of laws only about twenty million times during the course of its existence. Santander cheerfully elevates form over substance to allow the same actors to perform the same abhorrent deeds that the FDCPA was designed to prevent.

One could also characterize the Court’s ruling as dishonest in that it only analyzed half of the definition of “debt collectors.” In looking at Section 1692a(6), the court examined the defining language as “any person… who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The court’s decision then repeatedly referred to and emphasized the words “due another,” arguing that companies were only debt collectors if they fit that traditional form of collectors.

How the FDCPA Defines “Debt Collector”

Perhaps we should look at the part of the definition preceding the language in question to get a truer view of the statute’s clear intention:

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Section 1692a(6) (underlined portion is the part ignored by the Supreme Court in Santander, italicized word “any” is for emphasis)

Doesn’t it seem reasonable to read “any debts” literally, so that if the principal purpose of a business is to collect debts, they’re a debt collector? Of course it does, and that would obviously include businesses that exist to purchase debts and collect on them. The Court opinion glibly slides over that, saying that “the parties haven’t much litigated that alternative definition of debt collector and in granting certiorari we didn’t agree to consider it, either.” Santander, Slip Op. at 5. In other words, the Supreme Court agreed to hear only so much of the case as allowed them to shove a dagger into the apparent heart of the FDCPA – not enough of the case to show what the FDCPA actually intended or to do justice.

In theory, the decision in Santander leaves open the possibility that this “alternative” definition would extend the meaning of “debt collector” to junk debt buyers. On the other hand, the decision looks to me like a court in search of a justification for a desired outcome, and it has to be viewed as a negative indication for the Court’s integrity. Particularly in the context of its decision in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17) (see my article, “Opening the Floodgates of Bad Claims”), it shows actual hostility to the laws that protect consumers from debt collectors and a willingness to engage in intellectually dishonest games to destroy them. As a practical matter, it will likely be several years before the Supreme Court revisits the definition of “debt collector” and applies the entire definition to the question of junk debt buyers.

Pleading that a Junk Debt Buyer is a “Debt Collector”

The Supreme Court passed over the part of the definition of debt collector that defined businesses in terms of their “principal purpose” in favor of the “regularly collected” language. Why? Probably because debt defendants have normally found it very easy to prove that a company “regularly collected” debts – in fact, under prevailing Eighth Circuit law, for example, if a law firm represents collectors in as few as three to five cases per year it is considered to be “regularly collecting” debts. Under fact pleading rules, one must plead facts constituting a basis for your legal conclusion. So debt defendants routinely allege something like the following:

Heartless, Ruthless and Merciless, Attorneys at Law, represent debt collectors in dozens of lawsuits attempting to collect debts per year and are, accordingly, debt collectors, and

Heartless Debt Collector, Inc., regularly sues persons for debts purchased after default…

In other words, debt defendants have typically used the “regularly collected” language because it is easy to demonstrate as a matter of public record. Establishing a business’s “principal purpose” will be much more difficult. My attempts to find an authoritative definition for “principal purpose” of a business turned up zero cases. While I’m confident that there must be some cases that address the issue, it is certainly not many. The term “principal purpose” is frequently used in judicial decisions, but its use is primarily generic, as a synonym for “main” or “major.” I found no cases quantifying the term in any way.

The junk debt buyers, who purchase billions of dollars of debt for no other purpose than to collect it in any way they can, will argue that their “principal purpose” is to “service” that debt. In their lexicon that really means extort payment in as many ways, over as long a period, as possible. But they will claim all manner of beneficial purposes for their activities, and this will alter the nature of the proof required to establish that the company is a debt collector. Rather than being a matter of public record, information regarding a business’s “principal purpose” will be in the possession of the debt collector – and that means that parties attempting to obtain that information will encounter the same series of stone walls, delays and unethical and oppressive litigation strategies they encounter in all their other discovery attempts.

Considering the current ideology and integrity of the Supreme Court, of which debt collectors are very well aware, who knows what the courts will officially “believe?” As a debt defendant, you must now allege and attempt to prove that the debt collector’s main business is to collect debts, but the judicial wind will be in your face.

What Debt Defendants Should Do

Debt defendants have all the same defenses to debt lawsuits they ever did – or almost all of them. Santander applies very little to the defense of debt suits.

On the other hand, many and perhaps most lawyers are going to be scared away from taking debt cases. Many lawyers who have not closely examined Santander will simply regard the FDCPA as not applying to junk debt buyers – and that is almost all the debt collectors in litigation these days. These lawyers will decline to take debt defense cases or will charge much more, and accomplish much less, than they would have, because they will not think they can counterclaim on your behalf. Lawyers who have closely examined Santander and see the same things I do will have to charge more for their services and warn clients that chances of prevailing are not as good as they used to be.

This means that far more debt defendants will be on their own. The only way many of them will be able to have a defense at all will be if they defend themselves.

If you are currently involved in a debt lawsuit – with or without a lawyer, or as a lawyer on behalf of clients – and have a counterclaim, you should expect to see a motion to dismiss based on Santander. I believe you will want to amend your counterclaim to include the “principal purpose” language mentioned above. You will also need to conduct discovery designed to prove the company’s principal purpose.

Bankrupts Beware – FDCPA No Longer Applies to Claims

Bankruptcy has been one refuge debtors have from debt collectors, but the Supreme Court has recently made things much worse. In Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17), the Court held that filing claims in bankruptcy court on debts that are beyond the statute of limitations does not violate the Fair Debt Collection Practices Act (FDCPA). If you are in bankruptcy or considering it, this is huge.

Opening the Floodgates to Bad Claims

What Bankruptcy Does

In general, if your debts get too bad, you can file bankruptcy and force all your creditors to stop contacting you. They have to file claims in your bankruptcy action, and the court will either grant those claims or deny them. The court then determines the amount of payments you must make, over what period of time, and you do your best to do that.

It isn’t an easy path, and in fact most bankruptcies are dissolved without “discharge.” That is, most bankruptcies end without accomplishing their purpose. Obviously, the less money you have to pay, and the shorter the period you have to make payments, the better your chances of getting what you wanted out of bankruptcy in the first place: a “fresh start.”

The dirty little secret of bankruptcy, though, is that if claims are not disputed, they are generally granted. In bankruptcy cases brought by poor people (you can bet Donald Trump never had this problem), the lawyers representing the bankrupts have little (personal) incentive to dispute wrongful claims because they’re being paid out of the scanty resources of their clients. There’s a U.S. trustee who is supposed to oversee the process and protect the bankrupt and legitimate creditors from bad claims, but guess what?

They often don’t. Likewise, the court should attempt to winnow out bad claims, but given the number of bankruptcies and their complexity, this often does not happen.

In most bankruptcies, allowing a bad claim means that it’s going to get paid (eventually) by the person filing for bankruptcy. Under current realities, that means a lot of bad claims get paid by poor people.

Enter the junk debt buyers to make things much worse. They buy vast amounts of LONG overdue debt – debt far beyond the statute of limitations – and file claims in bankruptcy cases. This bogs the bankruptcy courts, the trustees, and bankruptcy lawyers down. The more bad claims they file, the more get through because of carelessness. They should NEVER get through, because an unenforceable claim should ALWAYS be denied under bankruptcy rules.

Bad claims hurt the chances of the bankrupts to get their fresh start, hurt the chances of the legitimate creditors to get paid, and incidentally makes the whole process stink to high heaven of injustice. Concern about this obvious corruption of the entire process, incidentally, is not just liberal “blather.” The courts jealously guard their claims to legitimacy – legitimacy is essential to their ability to work at all. Allowing a bunch of hoodlums in fancy suits to steal wholesale from the poor damages the legal system at its very core.

The FDCPA used to offer some protection against that, but the Supreme Court negated that protection with its holding in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17). In that case, the Court ruled that debt collectors could file claims in bankruptcy that would be illegal if filed in other courts.

Midland Funding, LLC v. Johnson

The relevant facts in Midland Funding are very simple. Midland, a junk debt buyer, was buying extremely old debts for very small amounts of money. They were using these debts, which were far beyond the statutes of limitations, as the basis for many claims in bankruptcy. Johnson opposed and had the claim in that case disallowed, and then filed suit in district court under the FDCPA, alleging that the claim had been unfair or unconscionable. The essence of Johnson’s claim was that filing obviously time-barred claims in a bankruptcy proceeding was an unfair debt collection practice.

The Supreme Court ruled that it was not.

There is no need to review (here) the tortured logic that effectively immunizes from consequences the intentional doing of something that never, under any circumstances, should be allowed. The state of the law simply is this: debt collectors can file obviously unenforceable claims in bankruptcy without worrying about the FDCPA.

There is perhaps one glimmer of light in this very bad decision. The Supreme Court was addressing “obviously outdated” claims. What Midland was doing was buying obviously unenforceable claims and hoping they would be overlooked and erroneously allowed. While this obviousness is one main way a debt collector’s intention to file outdated claims would be known, the obviousness was also a reason the Court found that the claims were not “deceptive.” What if the claims were known to be outdated by the debt collector but were not obviously so? Facts like that, or similar facts tending to show some actual intent to deceive would present difficult evidentiary issues, but the case could arise and might tip the balance in the other direction.

Conclusion

What the Midland Funding case means, in practical effect, however, is that even if you’re in bankruptcy you’re going to have to know and protect your own rights. Your lawyer has VERY LITTLE incentive to challenge bad claims, and the U.S. Trustee has VERY LITTLE time (or incentive) to do it. If the claims are allowed, you will be stuck paying them in all likelihood. That means that even if you file for bankruptcy you must be prepared to defend yourself against the debt collectors. You will AT LEAST need to know your rights, and you will very probably have to defend them pro se. You’re probably not going to get much help from your lawyer on this one.