Know Your Rights

Communicating with a Debtor During Bankruptcy Proceeedings

In the recent decision of Simon v. FIA Card Services, N.A. ("Simon"), the Third Circuit tackled the much debated issue of whether communication with a debtor during bankruptcy proceedings is considered a violation of the Fair Debt Collection Practices Act ("FDCPA").   In its opinion, the Third Circuit held that consumers are not barred from pursing claims against a collector for communication during this sensitive time period that violate the FDCPA.

In Simon, Stacey and Robert Simon ("Simons") filed for bankruptcy under Chapter 7.  During the proceedings, the Simons submitted a scheduled including an unsecured, non-priority claim credit card debt owed to Bank of America, now FIA Card Services ("FIA").   FIA retained the assistance of a law firm to represent its interests in the Simons' bankruptcy proceeding.  In an effort to be included in the proceedings the firm sent both the Simons and their attorney a letter stating FIA was planning to challenge the fact that the debt was dischargeable or alternatively offered to forego the challenge if the Simons agreed to pay off the debt for an agreed upon amount. 

In response to the letter, the Simons filed suit, alleging FIA violated their rights under the FDCPA by pursing a debt during bankruptcy.  The district court dismissed their claims stating they were barred by the Bankruptcy Code and furthermore, that their allegations were insufficient to state a claim under the FDCPA.  Dissatisfied with the outcome, the Simons appealed to the Third Circuit, who disagreed with the decision of the lower court. 

In its opinion, the Third Circuit rejected the law firm's argument that the FDCPA was inapplicable because its communication with the Simons should not be viewed as a demand for payment or an attempt to collect a debt.  The Court held that the FDCPA applies to any type of communication where the end result is to collect payment.  The firm's letter was in fact an attempt to settle the debt and receive payment in lieu of the firm filing a separate suit to re-characterize the type of debt so that it could be included in the bankruptcy. 

Second, the Court held that the allegations did in fact state a viable claim under the FDCPA.  The FDCPA specifically prohibits collectors from " threatening to take any action that cannot legally be taken or that is not intended to be taken" and "falsely representing or implying that documents are legal process" under1692e.  The Simons sufficiently showed the existence of this conduct on behalf of FIA, by threatening to file suit if payment was not agreed upon. 

The moral of the story is crystal clear, when communicating with a debtor in a bankruptcy proceeding collectors must comply with the FDCPA as they would when communicating with a non-bankrupt debtor or be subject to the consequences. 

If you feel your rights have been violated under the FDCPA and you wish to speak with an attorney, contact SmithMarco P.C. for a free case review. 

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