Monday, April 10, 2017

Bad Proofs of Claim Can Be Very Expensive



Barbara M. Barron
Stephen W. Sather
Barron & Newburger, P.C.
7320 N. Mopac Expwy., Suite 400
Austin, TX  78701



The goal of filing a proof of claim is to collect money.   However, errors in submitting claims can prove costly.  Six different problems to avoid are illustrated below.

Failure to Attach Supporting Documentation

Cases Prior to 2011

B-Line, LLC v. Wingerter (In re Wingerter), 594 F.3d 931 (6th Cir. 2010)

            Creditor filed a proof of claim without supporting documentation.    The creditor withdrew the claim after the debtor objected.   The Court then issued an order to show cause directing the creditor to explain its business practices and the handling of this specific claim.   The Court found that B-Line violated Fed.R.Bankr.P. 9011 because it did not make a reasonable pre-filing inquiry that the claim was valid and supported by the evidence.   However, because the creditor cooperated in response to the order to show cause, the Court did not assess sanctions.   On appeal, the Court found that the controversy was not moot even though no monetary sanctions were assessed.   The Court found that the creditor could appeal a non-monetary sanction to avoid injury to its reputation.    The Court reversed the bankruptcy court’s sanctions order.   It found that because the creditor obtained warranties from the entity from whom it purchased the debt as to its validity and had a track record of purchasing claims from this buyer that were not objected to 99.5% of the time, the creditor had done a reasonable pre-filing inquiry.

When Can FDCPA Claims Be Brought Based on Actions Taken in Bankruptcy Court?


    
Stephen W. Sather
Barron & Newburger, P.C.
Austin, TX

            The Bankruptcy Code protects debtors from their creditors.   The Supreme Court has stated that “(t)he principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor.’”     Marrama v. Citizens Bank, 549 U.S. 365, 367 (2007).
The Fair Debt Collection Practices Act (“FDCPA”) has seeks to protect consumers from abusive debt collectors.  As explained in one recent opinion:
The FDCPA was enacted "with the aim of eliminating abusive practices in the debt collection industry." This legislation and its history "emphasize the intent of Congress to address the previously common and severe problem of abusive debt collection practices and to protect unsophisticated consumers from unscrupulous debt collection tactics."  The FDCPA "focuses on regulating interactions between 'debt collectors' and 'consumers.'" (internal citations omitted).

Cohen v. Ditech Financial, LLC, 2017 U.S. Dist. LEXIS 43443 (E.D. N.Y. 3/24/17) at *5-6.