Debt collectors find no refuge behind bankruptcy code
By Patricia Manson, Law Bulletin staff writer
Despite their differences, the U.S. Bankruptcy Code and the Fair Debt Collection Practices Act can live side by side, a federal appeals court has held.
The 7th Circuit Court of Appeals on Wednesday rejected the notion that the Code trumps the FDCPA when provisions of both deal with the same matter. Instead, the FDCPA provides remedies in some circumstances for Debtors who are targets of forbidden debt-collection practices after they file, the Court held.
The Court said a Debtor may ask a Bankruptcy Judge to hold a creditor or debt collector in contempt for willful violation of the Automatic Stay, and that Debtors may in certain situations seek statutory damages against debt collectors -o though not creditors -o that negligently violate the FDCPA’s bar on false statements by demanding immediate payment of a debt that, by virtue of the Bankruptcy filing, is not due.
“Overlapping statutes do not repeal one another by implication; as long as people can comply with both, then Courts can enforce both” Judge Easterbrook wrote for a 3-member panel of the Court. The panel reinstated claims accusing debt collectors of violating 15 U.S.C. §1692e(2)(A), the provision of the FDCPA that holds false statements by debt collectors to be presumptive wrongful.
Those claims were brought in unrelated cases by 3 Debtors who contended they received a demand for immediate payment of a debt after filing for Bankruptcy.
The panel said such a demand constitutes a false statement under the FDCPA because 2 of the provisions of the Code -o 11 U.S.C. §362, the Automatic Stay provision, and 11 U.S.C. §524, the Discharge injunction -o put a halt to such dunning efforts. In addition, Sections 362(h) and 524(a)(2) allow a Debtor to seek a contempt finding against creditors or debt collectors for any willful violations, according to the panel.
The lower-court jurists in the three cases -o U.S. District Judge Elaine E. Bucklo in 2 and U.S. Magistrate Judge Sidney I. Schenkier in the other -o concluded that the Debtors could not pursue their FDCPA claims.
“In these three cases, which we have consolidated on appeal, the district courts held that remedies under the bankruptcy code are the only recourse against post-bankruptcy debt-collection efforts -o that the code trumps the FDCPA when they deal with the same subject, even when the two statutes are consistent” Easterbrook wrote. “On this view, negligent attempts to collect from debtors during or after bankruptcy cannot yield liability.”
Easterbrook and two of his colleagues disagreed.
Citing Baker v. IBP Inc., 357 F.3d 685 (7th Cir. 2004), the panel did reject the notion that section 362(h) of the bankruptcy code preempts section 1692e(2)(A) of the FDCPA.
“When two federal statutes address the same subject in different ways, the right question is whether one implicitly repeals the other -o and repeal by implication is a rare bird indeed,” Easterbrook wrote, citing Branch v. Smith, 538 U.S. 254 (2003), and J.E.M. Ag Supply Inc. v. Pioneer Hi-Bred International Inc., 534 U.S. 124 (2001). “It takes either irreconcilable conflict between the statutes or a clearly expressed legislative decision that one replace the other.”
The panel said the debt collectors’ argument that the bankruptcy code precluded any remedy under the FDCPA ”is one based on the operational differences between the statutes.”
“These do not, however, add up to irreconcilable conflict; instead the two statutes overlap, and if the plaintiff shows a more serious transgression -o the willful violation to which section 362(h) refers -o then more substantial sanctions (such as punitive damages) are available” Easterbrook wrote. “It is easy to enforce both statutes, and any debt collector can comply with both simultaneously.”
A contrary holding would leave a debtor without a remedy for some wrongs, the panel said.
“To say that only the code applies is to eliminate all control of negligent falsehoods,” Easterbrook wrote. ”Permitting remedies for negligent falsehoods would not contradict any portion of the bankruptcy code, which therefore cannot be deemed to have repealed or curtailed section 1692e(2)(A) by implication.”
While reinstating the debtors’ FDCPA claims, the panel declined to decide whether the debt collectors could establish a defense under another provision of that statute.
Section 1692k(c) of the FDCPA allows a debt collector to show that it exercises care in conducting its dunning efforts to avoid making any false statements.
Joining the opinion were Judges Michael S. Kanne and Ann Claire Williams. Jeanette Randolph v. IMBS Inc., No 03-1594; Cheryl Alexander v. Unlimited Progress Corp., Nos. 03-2185 and 03-2340; and Jennifer J. Cross v. Risk Management Alternatives Inc., No. 03-3182.