Supreme Court Reviewing Midland Funding Debt Case

Earlier last week, the United States Supreme Court began reviewing a case against Midland Funding for seeking to recover debts from people in bankruptcy even when it is barred from doing so by state statutes of limitations. Midland Funding commonly buys unpaid consumer debt for pennies on the dollar and seeks to recover them for the full amount. In the present case, an Alabama debtor, Alieda Johnson, entered bankruptcy in 2014. She sued Midland after it sought payment of a ten-year-old debt of $1,879. Alabama state law sets the statute of limitations for debt collectors to collect debt at six years.

The questions presented by this case include: (1) Whether filing a proof of claim on a knowingly time-barred debt violates the Fair Debt Collection Practices Act; and (2) Whether any such claim under the Fair Debt Collection Practices Act is impliedly repealed by the Bankruptcy Code? The present case involves conflicting opinions regarding the Fair Debt Collection Practices Act and the Bankruptcy Code. In the Eleventh Circuit case, Crawford v. LVNV Funding, LLC, the court held that filing a proof of claim on a knowingly time-barred debt violates the FDCPA. The Eleventh Circuit affirmed Crawford in the present case holding, in direct conflict with the Ninth Circuit and in tension with the Second Circuit, that the FDCPA claim found viable in Crawford was not impliedly repealed by the Bankruptcy Code.

During arguments, the Supreme Court seemed divided over the issues presented by the attorneys on both sides. Justices Sotomayor, Kagan, and Ginsburg posed tough questions to Midland’s attorney and indicated disdain for the debt collection practices of Midland Funding. After noting that Midland buys old debt it knows are not legally recoverable because of various state laws, Justice Sotomayor inquired whether the company knowingly purchases such debt so it could collect on millions of dollars. Midland’s attorney responded stating that Midland “makes every effort not to purchase time-barred debt” and conceded “they’re not always correct in their assessments.”

Ms. Johnson’s attorneys have said that the attempted collection of time-barred debt is a common practice for debt collection companies, even if that debt is not legally recoverable under state law. If the debtor does not object to such claims, the claims may still be brought against them when they have entered bankruptcy even if no legal basis exists for the collection. This poses a risk to debtors who should be afforded protection from such claims under state law. The United States Supreme Court is expected to issue a ruling in June.

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