Bankruptcy law is federal statutory law contained in Title 11 of the US Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to “establish… uniform laws on the subject of Bankruptcy throughout the United States.” See U.S. Const. Art.1, Sec. 8. States may not regulate bankruptcy; but, they may pass laws that govern other aspects of the debtor-creditor relationship. (From Cornell Law School, LII)
A medical debt collector sued the patient debtor for non-payment of a medical bill. As part of its collection process, it sent an inaccurate description of the patient’s rights to the debtor. Based on this inaccuracy, the patient-debtor sued the debt collector under the Fair Debt Collection Practices Act (FDCPA).
The debt collector won its state court case before the debtor’s federal case went to trial, and it used the state court judgment to effectively include (and thus extinguish) the debtor’s federal cross-claims. It then sought the execution of the debt, including the federal claims, and dismissal of the debtor’s federal lawsuit.
The federal district court dismissed the debtor’s lawsuit, but the 9th Circuit reversed. The Court of Appeals pointed out that the FDCPA preempts inconsistent state court debt collection practices. To do otherwise would undercut the law. The debtor’s federal lawsuit was reinstated.
PATRICIA ARELLANO, Plaintiff-Appellant, BANKRUPTCY LAW (Automatic Stay): In these times, creditors should be generous in allowing borrowers to repay balances. If debtor files for bankruptcy, insisting on collection may be costly.When the debtor files for bankruptcy, 11 USC Sec. 362(a) prohibits further attempts to collect the debt, except in certain specifically defined circumstances. A creditor who does not respect the automatic stay risks liability.The text of 11 USC Sec. 362(a), states, in pertinent part, the following:“(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of—(1)the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;(2)the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
CLARK COUNTY COLLECTION SERVICE, LLC; BORG LAW GROUP, LLC, Defendants-Appellees.
No. 16-15467 D.C. No. 2:15-cv-01424-
Argued and Submitted June 5, 2017, Pasadena, California
Filed November 17, 2017
Before: Sidney R. Thomas, Chief Judge, Stephen
From the Court:
“[T]he FDCPA does expressly preempt state laws “to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency,” 15 U.S.C. § 1692n. [Para.] In addition to evading liability and preventing Arellano from pursuing her potential federal claims, the collection agency has literally used the execution mechanism to collect debt from Arellano, and argues that she “has received the benefit of [the $250] reduction in her judgment.” But a debt collector cannot be allowed to use state law strategically toexecute on a debtor’s FDCPA claims against it under the guise of legitimate debt collection. Though the FDCPA does preserve debt collectors’ rights to collect what they are owed, the Act does not “authorize the bringing of legal actions by debt collectors.” See 15 U.S.C. § 1692i(b). Debt collectors cannot evade the restrictions of the Act by forcing a debtor’s claims to be auctioned, acquiring the claims, and dismissing them. To allow otherwise would thwart enforcement of the FDCPA and undermine its purpose. See 15 U.S.C. §§ 1692k, l.”
(3)any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4)any act to create, perfect, or enforce any lien against property of the estate;
(5)any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
(6)any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
(7)the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and
(8)the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title.”
For example, in an en banc opinion, the 9th Circuit held that debtor can recover all fees spent in resisting creditor who violates automatic stay in seeking to collect debt (America’s Servicing Co. v. Schwartz-Tallard, originally issued 4/16/2014, San Francisco, modified Autumn 2015). The court cited a previous opinion that stated: “The automatic stay is intended to give ‘the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions.’ S.Rep. No. 989, 95th Cong., 2d Sess. 54, reprinted in 1978 U.S. Code Cong. Admin. News 5787, 5840.” In re Bloom, 875 F.2d 224, 226 (9th Cir.1989).
US Constitution Provides for bankruptcy in Article I. It is a serious law.
WARNING: This post does not constitute legal advice, nor does reading it create an attorney/client relationship.
US Code cited by Cornell University, Legal Information Institute
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