Cartoon of man with billA very recent Eleventh Circuit decision, Crawford v. LVNV Funding, LLC, No. 13-12389 (11th Cir., July 10, 2014), highlights an interesting split among the circuits, which makes things ripe for an appeal to the Supremes.

First let’s get a little background.

BACKGROUND

I.                The Automatic Stay And The Discharge Injunction

When a person files for bankruptcy protection, the automatic stay is triggered.  The stay prevents creditors from taking action against the debtor, the debtor’s possessions, and the bankruptcy estate that is created upon filing.  I have written about the automatic stay in many previous posts, so I won’t spend a lot of time exploring it here.

[T]he stay . . . continues until the earliest of —

(A) the time the case is closed;

(B) the time the case is dismissed; or

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied.

11 U.S.C. § 362(c) (2).

If the debtor receives a discharge, then once the stay terminates it is replaced by the permanent discharge injunction of 11 U.S.C.  § 524(a), that forever prohibits creditors from attempting to collect discharged debts.

 

II.              The Fair Debt Collection Practices Act

The Bankruptcy Code is federal law, made pursuant to Congress’s enumerated power “to establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.”  U.S. Const. art. I, § 8, cl. 4.  It affords debtors marvelous protections — including the automatic stay and the discharge injunction — against the depredations of their creditors.

Another federal law that protects debtors, in this case from debt collectors, is the Fair Debt Collection Practices Act (“FDCPA”) found in 15 U.S. Code § 1692, et seq.  The FDCPA contains significant limitations on what a debt collector can do.  By the way, the limitations here are not on the creditor, just on the collector.

 

III.            The Doctrine Of Federal Preemption

The U.S. Constitution contains the following provision:

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

U.S. Const., art. VI, para. 2.

This means that federal laws are binding on everyone.  Thus, if there is a conflict between a federal statute and a state statute, the federal statute always wins.  This is sometimes referred to as the doctrine of federal preemption.

But notice what the Constitution does not say.  It does not say anything about the relationship between two federal statutes.  Therefore, if there were an inconsistency between two federal statutes, there is no formula for determining which statute controls.  And if there were no conflict between two federal statutes, there is no indication that one should be preferred above the other.

 

IV.            The Ninth Circuit’s Walls Decision

In 2002 the U.S. Court of Appeals for the Ninth Circuit issued a decision in Walls v. Wells Fargo Bank, N.A., 276 F. 3d 502 (9th Cir. 2002), that has created a problem for Ninth Circuit practitioners. Continue Reading Fair Debt Collection Practices Act And Bankruptcy

Debt collectors serve the useful role in society of forcing many debtors who otherwise wish to pay their debts into bankruptcy.  They also provide a source of additional income for bankruptcy attorneys when they violate the automatic stay of 11 U.S.C. § 362(a), the discharge injunction of 11 U.S.C. § 524(a), and the Fair Debt Collections Act of 15 U.S.C. § 1692 et seq..

In spite of these important roles, the California Attorney General, Kamala D. Harris, has filed a lawsuit against JPMorgan Chase, based on the fact that JPMorgan Chase violated various collection laws.  As Andrew Tangel and Alejandro Lazo reported in the May 27, 2013 edition of the Los Angeles Times:

In a lawsuit that echoes the worst abuses of the foreclosure crisis, the state’s top law enforcement official is suing the nation’s largest bank, accusing it of using aggressive and illegal tactics to collect credit card debt from thousands of California consumers.  Atty. Gen. Kamala D. Harris on Thursday accused JPMorgan Chase & Co. of operating a “debt collection mill” that flooded courts with more than 100,000 lawsuits to obtain speedy judgments before consumers could fight back. Much as banks did during the housing crisis, JPMorgan used so-called robo-signing to churn out documents without reviewing them, Harris said.  The state alleges that JPMorgan relied on incomplete records and erroneous information to make its cases; in some instances, key documents allegedly were signed by low-level employees posing as assistant treasurers and bank officers.  Harris also alleges that the bank revealed customers’ credit card numbers, potentially exposing them to identity theft.  JPMorgan also failed to notify some customers that lawsuits had been filed against them, a practice known as “sewer service” litigation, according to Harris.  The bank ”abused the judicial process and engaged in serious misconduct against California credit card borrowers,” Harris said. “This enforcement action seeks to hold [JPMorgan] accountable for systematically using illegal tactics to flood California’s courts with specious lawsuits against consumers.”

Picky, picky, picky.

Let’s look at just one of the charges against JPMorgan Chase:  Failing to notify customers that a lawsuit had been filed against them.  What’s the big deal?  Does the bank have to tell you everything it does?  After all, the government doesn’t have to tell you everything.

For example, I knew a guy — let’s call him Joseph K — who faced criminal charges, and had a trial without ever finding out what the charges were.  He was eventually executed without ever learning what the charges were against him.  No problem, right?  Oops.  I just remembered:  I didn’t know Joseph K personally.  Joseph K’s story, called The Trial, was told by a writer named Franz Kafka.  It illustrated what could go wrong in a society without the rule of law.

Maybe JPMorgan Chase’s behavior wasn’t acceptable after all.

But surely the other debt collectors are all above board.  Not according to Mr. Tangel and Mr. Lazo — and stop calling me Shirley.  Later in the article they state:

[D]ebt buyers appear to have business models in which they are able to go into California superior courts and get default judgments against consumers.  A majority of these debt collection cases go to default judgments, indicating that many of these firms do not make adequate efforts to notify people that they are being sued . . .

In fact, I have seen remarkably illegal and wicked behavior by debt collectors, and have written about it in great detail.  I even discussed the way debt collection practices have corrupted Sheriff’s departments.  And still the problem persists.

If you’ve been troubled by debt collectors —especially those attempting to collect money while you’re in bankruptcy, or attempting to collect debts that were discharged in bankruptcy — the good news is you can get relief.  Call a high quality bankruptcy attorney to discuss your options.

 

 

An ongoing source of distress for debtors is truly abusive debt collectors.  Many of these alleged humans ignore the due process rights of debtors, lie, and break the law in their efforts to shake down debtors.  Can anything be done?  Finally, the federal and state governments are starting to take some action.

I.          The Problems

A.        Collectors Fail To Follow The Due Process Rules

I regularly have clients show me abstracts of judgment from state court cases in which they knew nothing about the suit until receiving the judgment.  Are my clients lying?  I don’t think so.  In fact, a California state senator had the same thing happen to him.  According to Jim Puzzanghera, in the August 20, 2012 Los Angeles Times:

Several years ago, debt collectors began pursuing state Sen. Lou Correa (D-Santa Ana) for an unpaid Sears bill they said he owed.  He told them they had the wrong man, but the debt collectors never wavered.  “These folks are very aggressive,” Correa said. “They’ll call back repeatedly and say, `Tell us some personal information so we can tell it’s not you.’  When all of a sudden is the burden of proof on me?”  Last year, Correa discovered his Senate paycheck was being garnisheed [sic] because of a $4,329 lien for the Sears debt.  Brachfeld had obtained a default judgment in court, even though, Correa said, the lawsuit was never served on him and he knew nothing of the claim or the court hearing.  He later learned that the debt belonged to a Luis Correa from Santa Ana. The man had a different Social Security number, different address, even different first name — the senator is legally Jose Luis Correa.  “I always pay my bills on time.  Then to have somebody garnish my wages, I thought was pretty astounding,” the lawmaker said.  He later resolved the problem and stopped the wage garnishment.  Now Correa is supporting a bill by state Sen. Mark Leno (D-San Francisco) to require debt collectors to document that they are pursuing the right person for the correct amount of money.  The bill passed the Senate and is pending in the Assembly.

If these entities can abuse a state senator, where does that leave the average person without any political clout? Continue Reading A Crackdown On Abusive Debt Collectors