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Collection Actions: 11.2.2 Debtors’ Prisons

The U.S. Supreme Court addressed the problem of debtors’ prisons in Tate v. Short.19 Tate was unable to pay $425 in fines arising from various traffic offenses. A local court ordered that Tate be imprisoned pursuant to Texas law authorizing incarceration for nonpayment of fines and costs to “satisfy” the debt at a rate of $5 per day spent in prison. Tate argued that he was too poor to pay the fines, but the state courts held that his indigence did not justify his release.

Collection Actions: 11.2.4 Constitutionally Required Procedural Safeguards

The U.S. Constitution is also implicated if a state fails to afford meaningful procedural safeguards against erroneous deprivation of liberty for nonpayment, including in the course of making ability-to-pay determinations. Turner v. Rogers45 is an important 2011 Supreme Court decision on this issue, even though it does not directly address criminal justice debt.

Collection Actions: 11.3.1 Introduction

In at least forty-five jurisdictions, individuals may be incarcerated for “willful” nonpayment of criminal justice debts.50 Incarceration may result, for example, through:

Collection Actions: 11.3.2.1 Generally

Too often, attorneys are not involved in proceedings to enforce criminal justice debt. Some states do not recognize a right to counsel in civil contempt proceedings under state law, even when incarceration may result.57 Often the right to counsel for indigent defendants varies by jurisdiction and on case-by-case factors.58

Collection Actions: 11.3.2.2 Representation by LSC-Funded Offices

Restrictions bar use of Legal Services Corporation (LSC) funds to represent clients with respect to: “criminal proceedings” in which a client has been charged with an offense punishable by “death, imprisonment, or a jail sentence”;59 actions collaterally attacking a criminal conviction such as habeas corpus proceedings;60 and the representation of people in prison and incarcerated pre-trial detainees in civil litigation.61 These LSC rules lea

Collection Actions: 11.4.4.1 States Cannot Limit Federal Exemptions

Even if a state explicitly provides that state exemptions are inapplicable to criminal justice debt, state law cannot limit the operation of federal exemptions that apply to state criminal justice debt.220 Courts have rejected the argument that concerns of federalism bar application of federal exemptions to state collection actions.221

Fair Debt Collection: 3.4.4.1 Overview

The Consumer Financial Protection Bureau (CFPB) has been interpreting and enforcing the FDCPA since it was established by the Dodd-Frank Act,163 and the Federal Trade Commission (FTC) has been interpreting and enforcing the FDCPA since the law was enacted in 1977.

Fair Debt Collection: 13.5.1 Overview

Lawsuits within a bankruptcy case are called “adversary proceedings.”268 Adversary proceedings are initiated by complaint and are governed by rules that closely parallel the Federal Rules of Civil Procedure. Depending on the specific circumstance of the case, the bankruptcy court may be a preferable forum for litigating claims related to abusive debt collection. Not only do bankruptcy judges regularly see the problem of debtors in trouble, but they are also generally more aware of the unfair creditor practices that often take place.

Fair Debt Collection: 13.5.2 The Supreme Court’s Decision in Stern v. Marshall

In Stern v. Marshall285 the Supreme Court issued another ruling in a series of decisions construing the bankruptcy courts’ authority to adjudicate fully certain types of legal claims raised in the course of a bankruptcy proceeding. Bankruptcy court judges are not “Article III” judges with life tenure, and the Supreme Court has on occasion found that this status imposes a limit on the types of controversies in which they can render final judgments.

Fair Debt Collection: 13.7.1 Overview

Sometimes after a debtor has filed for bankruptcy, debt collectors’ actions violate both a provision of the Bankruptcy Code and federal or state debt collection laws. For example, a debt collector’s attempt to collect a discharged debt violates the discharge order and may also constitute harassing, oppressive, or abusive conduct under the FDCPA. A debt collector may file a debt collection lawsuit against the debtor after they have filed for bankruptcy, giving rise to both an automatic stay violation and an FDCPA claim.

Fair Debt Collection: 13.7.2.1 The Seventh Circuit Randolph Decision

Debt collectors have routinely argued that FDCPA claims are “preempted” by the Bankruptcy Code. According to the debt collectors, a debtor is precluded from pursuing claims under the federal FDCPA for conduct related to bankruptcy, including violations of the automatic stay and discharge injunction.

Fair Debt Collection: 13.7.2.2 The Third Circuit Decision in Simon

Disputes at the intersection of the Bankruptcy Code and the FDCPA most often involve debt collection claims related to enforcement of the automatic stay, the discharge order, and the validity of proofs of claim. The Third Circuit addressed a more unusual intersection of the Bankruptcy Code and the FDCPA in Simon v.

Fair Debt Collection: 13.7.2.3 The Second Circuit Decision in Garfield

The Second Circuit in Garfield v. Ocwen Loan Servicing, L.L.C.,366 adopted the reasoning of Randolph to reject a preemption argument in the context of an FDCPA claim alleging violation of the discharge injunction. The court distinguished decisions that had found preemption of FDCPA actions related to violations occurring during a bankruptcy case.

Fair Debt Collection: 13.7.2.4 The Ninth Circuit Decision in Walls

By contrast, the Ninth Circuit in Walls v. Wells Fargo Bank,370 concluded that a contempt action in the bankruptcy court provided the sole remedy for violation of the discharge injunction.371 The Walls court based its decision, with respect to the FDCPA claim, on the view that a debtor should not be permitted to create a private right of action for a violation of the Code’s discharge injunction, when none exists under the Bankruptcy Code, by using another federal statute.

Fair Debt Collection: 13.7.2.6 The Prevailing View: No Implicit Repeal

Outside the Ninth Circuit, lower courts apply the direct conflict analysis articulated by the Randolph, Simon, and Garfield courts and allow consumers to seek remedies under the FDCPA for debt collectors’ bankruptcy-related misconduct.380 This is particularly true with respect to FDCPA claims based on collection activities that violate the discharge order entered in a bankruptcy case.381 Violations of the automatic stay also give rise to FDCPA claims.

Fair Debt Collection: 13.7.2.7.3 The Exception for Secured Debts

An exception to section 1006.30(b) of Regulation F applies to certain secured debts. In 2005 Congress amended the Bankruptcy Code to add an exception to the discharge injunction for debts secured by a debtor’s principal residence.396 Section 524(j) of the Code permits a mortgage creditor to communicate with the debtor post-discharge in the ordinary course of business to the extent the communications are limited to obtaining periodic payments on the mortgage.

Fair Debt Collection: 13.7.3.3 Filing a Stale Proof of Claim as an FDCPA Violation—the Supreme Court’s Midland Funding Decision

Through a “stale” proof of claim filed in a bankruptcy case, a creditor seeks payment from the bankruptcy estate for a debt that can no longer be enforced by a judicial action filed in a non-bankruptcy court due to expiration of a statute of limitations. With the growth of the debt buying industry, abuse of the bankruptcy claim process by filing stale claims has become widespread.