Earlier this week, the U.S. Supreme Court held that a creditor who deliberately files a bankruptcy proof of claim for a time-barred claim does not violate the Fair Debt Collection Practices Act (FDCPA). Midland Funding v. Johnson, No. 16-348, 581 U.S. __ (May 15, 2017) (slip op.). The 5-3 decision authored by Justice Stephen Breyer was met with a blistering dissent by Justice Sonia Sotomayor. While the decision will help unscrupulous debt collectors, it will likely hurt legitimate creditors such as banks.
The FDCPA imposes penalties for “unfair and unconscionable means to collect a debt.” 15 U.S.C. § 1692f. All states have statutes of limitation setting a time limit on bringing certain types of lawsuits. Once the limitations period has passed, a creditor may not sue to collect the debt. The debt does, however, in some sense continue to exist. If the debtor chooses to repay a time-barred debt, the creditor can keep the money. As a banker, please be sure to send a thank-you note when this happens; you’ll be in no danger of writers’ cramp given the infrequency of the occurrence.