Tuesday, October 5, 2010

FYI: 2nd Cir Holds BK Proof of Claim Cannot Form Basis of FDCPA Action

The U.S. Court of Appeals for the Second Circuit recently held that a proof of claim filed in bankruptcy court cannot form the basis for a claim under the federal Fair Debt Collection Practices Act. 
A copy of the opinion is available at:
The consumers brought a putative class action, alleging that an allegedly inflated proof of claim filed by a creditor in their bankruptcy proceeding constituted a violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq., because it allegedly misrepresented the amount of the debt allegedly owed by the consumers.
The defendants moved to dismiss on the ground that an inflated proof of claim in bankruptcy court cannot form the basis for an FDCPA action as a matter of law, and also sought costs and attorneys' fees pursuant to 15 U.S.C. § 1692k(a)(3).  Both their motions to dismiss and their requests for attorneys' fees and costs were granted by the district court.  This appeal followed.
The Second Circuit joined several other federal courts that have held that filing a proof of claim in bankruptcy court (even one that is somehow invalid) cannot constitute the sort of abusive debt collection practice proscribed by the FDCPA, and that such a filing therefore cannot serve as the basis for an FDCPA action. 
In so ruling, the Court noted that "[t]he FDCPA is designed to protect defenseless debtors and to give them remedies against abuse by creditors," and "[t]here is no need to protect debtors who are already under the protection of the bankruptcy court, and there is no need to supplement the remedies afforded by bankruptcy itself."

As you may recall, bankruptcy provides remedies for wrongfully filed proofs of claim, including revocation of fraudulent proofs of claim and the court's substantial contempt power.  The consumer here did not seek or invoke these remedies remedies. 

However, because the issue was a legal one that was not decided in the Second Circuit, the Court vacated the lower court's award of fees and costs under 15 U.S.C. § 1692k(a)(3).

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

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Chicago, Illinois  60602
Direct:  (312) 551-9320 

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