Banking and Finance Law Daily Bankruptcy Code not only remedy for discharged debt collection efforts
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Tuesday, January 5, 2016

Bankruptcy Code not only remedy for discharged debt collection efforts

By Richard A. Roth, J.D.

Consumers complaining about debt collector post-bankruptcy discharge debt collection efforts can sue under the Fair Debt Collection Practices Act or can return to the bankruptcy court for relief, the U.S. Court of Appeals for the Second Circuit has decided. The Bankruptcy Code neither implicitly repeals the FDCPA nor makes the collection act inapplicable because the two are not in conflict (Garfield v. Ocwen Loan Servicing, LLC, Jan. 4, 2016, Newman, J.).

The consumer in the suit obtained a bankruptcy court discharge of her personal liability for her mortgage loan, but she agreed to pay the arrears and make future payments in order to avoid a foreclosure. However, she soon fell back into default, making only one monthly payment after the discharge order was entered.

The loan servicer, Ocwen Loan Servicing, then demanded payment of not only the delinquent post-discharge payments, but of the entire unpaid loan amount. This included approximately $15,000 that had been discharged in bankruptcy. Ocwen also reported the entire amount as delinquent to a consumer reporting agency.

The consumer’s FDCPA suit, claiming myriad violations, was dismissed. According to the district court judge, the Bankruptcy Code provides the only remedy available to consumers after a bankruptcy court discharge. Even if the Bankruptcy Code does not preclude all FDCPA claims, the specific claims raised by the consumer were precluded because they were in conflict with the Bankruptcy Code’s remedies. The consumer’s sole remedy was to ask the bankruptcy court to hold Ocwen in contempt of court for violating the discharge order, the judge said.

No implied general repeal. The Bankruptcy Code did not implicitly repeal the FDCPA, either in full or in part, the appellate court began. There was no indication that Congress intended that consequence, and an implicit repeal would be found only if the two laws were irreconcilable.

Once a consumer’s debts have been discharged by a bankruptcy court, there is no irreconcilable conflict between the FDCPA and the Bankruptcy Code, the court then said. Ocwen could have complied with both.

No repeal of specific FDCPA sections. The appellate court acknowledged that it was at least possible for the Bankruptcy Code to have implicitly repealed specific FDCPA sections even if it did not repeal the entire debt collection act. However, none of the sections relied on by the consumer suffered that fate, again because there was no irreconcilable conflict between the laws.

Included among Ocwen’s arguments for preemption of specific sections was one the appellate court characterized as “somewhat perverse.” According to Ocwen, many of the FDCPA sections cited by the consumer addressed how a debt collector can collect a debt. These sections were in conflict with the Bankruptcy Code because they implied that the debt could be collected, which was contrary to the effect of the bankruptcy court discharge.

However, Ocwen could have complied with the FDCPA and the Bankruptcy Code simply by not attempting to collect the discharged debt, the appellate court pointed out. An effort to do so potentially would violate both laws. There was no conflict.

The case is No. 15-527.

Attorneys: Kenneth R. Hiller (Law Offices of Kenneth Hiller, PLLC) for Donna Garfield. Gary Neal Smith (Houser & Alison) for Ocwen Loan Servicing, LLC. Daniel L. Geyser (Stris & Maher LLP) for amicus curiae Association of Consumer Bankruptcy Attorneys, in support of Donna Garfield.

Companies: Association of Consumer Bankruptcy Attorneys; Ocwen Loan Servicing, LLC

MainStory: TopStory ConnecticutNews DebtCollection NewYorkNews VermontNews

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