In the world of bankruptcy, filing a proof of claim on time, i.e. before the claims bar date, is imperative, but filing “stale” claims can result in penalties bigger than claim denial or loss of claim priority.
Bankruptcy Judge August B. Landis of Las Vegas, Nevada recently issued a reminder to creditors and their counsel that filing “stale” claims in a bankruptcy might not violate the Fair Debt Collection Practices Act, but it can still result in the imposition of sanctions against the creditor / attorney who filed the late claim. Specifically, in In re Andrade-Garcia, Judge Landis found the creditor liable for the debtor for attorneys’ fees incurred in successfully objecting to “frivolous” claims that were time barred (by many years) under Nevada’s fee-shifting statute.
In a somewhat familiar factual scenario, the creditor filed three claims it had purchased from the original creditors. However, per the Court, “Account Detail forms attached to the Claims also plainly show(ed) that both the charge off date by the original credit provider, and the last transaction on the relevant account, occurred more than a decade prior to the commencement of Debtor’s case.”
The Nevada statute, NRS 18.010, allows the prevailing party to recover attorneys’ fees when a claim is “brought or maintained without reasonable ground(s),” and provides for liberal construction by the court in favor of awarding attorneys’ fees to punish for and deter frivolous or vexatious claims and defenses because such claims and defenses “overburden limited judicial resources, hinder the timely resolution of meritorious claims and increase the costs of engaging in business and providing professional services to the public.”
Judge Landis said that the “filing of multiple and obviously time barred claims in a Nevada Chapter 13 bankruptcy case is precisely the type of frivolous claim that overburdens the limited judicial resources of the courts, hinders the timely resolution of meritorious claims, and increases the costs of professional services rendered by debtor’s counsel to their clients.” The Court went on to distinguish the case at hand Midland Funding , wherein the Supreme Court held a debt collector who files a claim that is “obviously” barred by the statute of limitations has not engaged in false, deceptive, misleading, unconscionable, or unfair conduct and thus does not violate the FDCPA, because the debtor in Andrade-Garcia was seeking attorneys’ fees under state law and not under the FDCPA.
Looking to Justice Sotomayor’s dissent in Midland Funding, Judge Landis stated the filing of stale claims in bankruptcy cases has become “common practice” among debt buyers and “is a systemic abuse of the bankruptcy system that overburdens the limited judicial resources available to debtors and creditors alike.” He, therefore, decided it was proper to apply the fee shifting provisions of the Nevada statute so the creditor would bear the burden of the debtor’s attorney’s fees incurred in successfully prosecuting her opposition to the “patently stale claims.”
If you need help understanding your rights in the complicated bankruptcy process, contact the experienced bankruptcy attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices.
In re Andrade-Garcia, 17-15277 (Bankr. D. Nev. March 4, 2020).
Midland Funding LLC v. Johnson, 137 S. Ct. 1407, 197 L. Ed. 2d (2017).