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.


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

Today, the Wall Street Journal’s Market Watch had an article by Michael Casey with the provocative headline:  Why a flood of bankruptcies is good for America.  It’s nice to see that the chronicler of record for the American economy understands the principle I’ve been stating for a long time.

In his article Mr. Casey compares the draconian approach Europe has to insurmountable debt with the much more sensible American position:

In Europe, . . . a place that is now beset by economic stagnation, sliding property prices and soaring unemployment, people are straitjacketed by laws that make it nearly impossible to have their debts forgiven.  In the U.S., by contrast, growth is returning and both consumer and business confidence are picking up after millions of foreclosures and personal bankruptcies were rammed through the courts.  The American economic system, shaped by an ethos that treats failure as a necessary if unwelcome element of entrepreneurship, is doing what it does best:  renewing itself.  The fact that Europe’s can’t do the same should ensure that investment flows favor the U.S. over time.  So although the euro’s higher interest rates are currently giving it the edge over the dollar, the greenback’s future is brighter.  And a key reason for that is because the U.S. economy has a better mechanism for clearing its debts.

Life is messy, and as Robert Burns put it:  “The best-laid schemes o’ mice an’ men gang aft agley, an’ lea’e us nought but grief an’ pain, for promis’d joy!”  Therefore,  it should come as no surprise that many people will find themselves in financial straits.  It is therefore good to live in a country that gives people a second chance through bankruptcy after financial difficulties.  Indeed, without the possibility of a fresh start after a failed business venture, most people would be reluctant to start a new business.

Section 8 of the very first article of the U.S. Constitution states:

The Congress shall have Power To . . . establish . . . uniform Laws on the subject of Bankruptcies throughout the United States . . .

If way back in the 1780s the Founders saw fit to include bankruptcy in the very short list of enumerated powers of Congress in Article 1, section 8  of the Constitution, we may conclude that they felt that a fresh bankruptcy start was important.  As a result, America has been the land of entrepreneurs and innovation, more so than any other country in history.

Moreover, if God says bankruptcy is a good thing, who am I to argue with the King of the Universe?  After all, at the Lord’s command Moses wrote:

At the end of every seven years thou shalt make a release.  And this is the manner of the release:  Every creditor that lendeth ought unto his neighbour shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the Lord’s release.

Deut. 15:1-2.

Now, if only the state and federal governments could get rid of their debts.  Unfortunately, that would require that the elected officials actually cared about the good of the country rather than the good of themselves.  Maybe one day . . . when pigs learn to fly.

If you’re facing insurmountable debt and you want to get the fresh start that bankruptcy affords, call a high quality bankruptcy attorney to learn of your options.

This post gathers my thoughts on three eye openers.  Some were in the news, and some I experienced first-hand in my bankruptcy practice.  The common thread among these eye openers is a profound threat to the freedom and wellbeing of the citizenry.

I.          Debt Collector Abuses

A.        Whole Lotta Collectin’ Goin’ On

In the February 16, 2012 Los Angeles Times, Jim Puzzanghera reported on the recently formed Consumer Financial Protection Bureau and noted:

Debt collection has been second only to identity theft in consumer complaints to the Federal Trade Commission in recent years. The bureau estimated that 30 million Americans have debts in the collection process.

Thirty million!  Wow!  That’s one-tenth of the entire U.S. population.  So it’s not just my clients who are facing debt collection agencies and their corrupt and abusive tactics.  And given the volume of complaints it appears that abuses by debt collectors are widespread – it’s not just a few bad apples. Continue Reading Debt Collectors; Sheriff’s Department Corruption; A Justice’s Nutty Opinion

In my last post I discussed reaffirmation of debts in bankruptcy.  Near the end of the post I described some loans I had seen my clients take out with interest rates as high as 496%.  At the end of the post I said that that loan shark rate was perfectly legal and promised to tell you why.  This post fulfills that promise by providing you with a bit of history.  I know, there’s no future in history – bad joke.  But this history may prove both enlightening and entertaining.

On April 20, 2005 President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) (uncharitably referred to by some as “BAPCraPA”).  BAPCPA made some sweeping changes to the Bankruptcy Code.  These changes affect not only debtors contemplating bankruptcy, but also attorneys – and not just bankruptcy practitioners.

I.          The Origins Of American Bankruptcy Law

Article 1, section 8 of the U.S. Constitution grants Congress the power:  “To establish . . . uniform rules on the subject of bankruptcies throughout the United States.”  Why did the Founders feel that it was necessary to include this power in the relatively short list of enumerated congressional powers? Continue Reading A Bankruptcy History Lesson