Midland Funding v. Johnson

PETITIONER: Midland Funding, LLC
RESPONDENT: Aleida Johnson
LOCATION: U.S. Court of Appeals for the 11th Circuit

DOCKET NO.: 16-348
LOWER COURT: United States Court of Appeals for the Eleventh Circuit

GRANTED: Oct 11, 2016
ARGUED: Jan 17, 2017

Kannon K. Shanmugam - for the petitioner
Sarah E. Harrington - Assistant to the Solicitor General, Depart­ment of Justice, for the United States, as amicus curiae
Daniel L. Geyser - for the respondent

Facts of the case

In 2014, Aleida Johnson filed for bankruptcy in Alabama bankruptcy court under Chapter 13 of the Bankruptcy Code. In 2003 and years prior, Midland Funding had purchased a bundle of debt worth almost $2,000 from Johnson, so after she filed for bankruptcy, Midland Funding filed a proof of claim in the same court. Because the date of the last transaction in the account in question occurred in 2003 and the statute of limitations for collecting unpaid debt in Alabama is six years, Johnson sued Midland Funding in federal district court argued that the Fair Debt Collection Practices Act (FDCPA) prevented bankruptcy actions that had passed their statutes of limitations.


Midland Funding moved to dismiss, and the district court granted the motion. The district court determined determined that, while the FDCPA prohibited the filing of a proof of claim known to be barred by the statute of limitations, the U.S. Bankruptcy Code allowed a creditor to file a proof of claim even after the statute of limitations has run. The district court resolved that conflict by holding that the creditors’ right to file a claim precluded debtors from challenging that practice under the FDCPA. Johnson appealed, and the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded the case. The appellate court found that, although the Bankruptcy Code allowed creditors to file claims barred by the statute of limitations, that did not preclude them from liability under the FDCPA for filing the claim.



  1. Does the Fair Debt Collection Practices Act (FDCPA) prevent creditors from filing proofs of claims on unpaid debts after the statute of limitations on those debts has run?

  2. Does the U.S. Bankruptcy Code preclude applications of the Fair Debt Collection Practices Act (FDCPA) when dealing with unpaid debts after the statute of limitations on those debts has run?

Media for Midland Funding v. Johnson

Audio Transcription for Oral Argument - January 17, 2017 in Midland Funding v. Johnson

John G. Roberts, Jr.:

We will hear argument next in Case 16-348, Midland Funding v. Johnson. Mr. Shanmugam.

Kannon K. Shanmugam:

Thank you, Mr. Chief Justice, and may it please the Court: The Bankruptcy Code sets up a process for evaluating claims that are subject to potential limitations defenses.

Under that process, a creditor seeking to collect on a debt files a proof of claim. For certain types of consumer debt, the creditor also includes information to enable the trustee and other parties in interest to assess the claim's timeliness and where appropriate to object.

A creditor is not required to go further and to certify that there is no valid limitations defense to its own claim.

If that is exactly what Respondent and the government are asking this Court to do, under the guise of interpreting the Fair Debt Collection Practices Act.

There is nothing --

Ruth Bader Ginsburg:

Under the Fair Debt Collection Practices Act, suppose there were a suit brought in court to collect on a debt that is time-barred.

Would that violate the Fair Credit law if you sued in court on a debt that was time-barred?

Kannon K. Shanmugam:

Justice Ginsburg, our view, perhaps not surprisingly, is no.

Our view is that there would be nothing misleading or unfair about the suit in that instance. But this Court need not address that issue in order to resolve the question presented here, and indeed, the courts of appeals that have accepted our view have largely assumed that the filing of a suit in state court presents different considerations from the filing of a proof of claim in bankruptcy.

And that is for the simple reason that there are distinctive characteristics about the operation of the bankruptcy system. First, and perhaps most importantly, the bankruptcy system defines the term "claim" quite broadly to include any circumstance in which there is a right to payment.

And as this Court held in Butner, whether or not there is a right to payment is defined under state law, and Alabama law is clear that the running of a limitations period does not extinguish the right; the right remains.

And so, for instance, if the debtor takes some action to make repayment, the right springs back into life, indeed, the right never disappears in the first place, but the right, once again, becomes judicially enforceable.

Anthony M. Kennedy:

Are there -- are there any circumstances, just as a practical matter, where the trustee decides that the trustee is going to pay the time-barred debt, it's obviously prejudicial to the other creditors.

Are there any -- I was -- I was just trying to think of that.

I -- I can't think of any instance in which a trustee would want to do that.

I was thinking suppose the debtor wanted to continue a business relation with the -- with -- with the creditor whose debt is time-barred, and -- and as for -- but I -- I just can't think of any instance.

But perhaps --

Kannon K. Shanmugam:

No, and -- and -- and Justice Kennedy, I can't think of any instance either, and I think that that's precisely because the trustee has the statutory duty to object, to preserve the assets of the estate, and to do so for the creditors.

And, again, that is a critical feature of the bankruptcy system.

Sonia Sotomayor:

I'm sorry.

I'm having a great deal of difficulty with this business model. Completely.

You buy old, old debts that you know for certainty are not within any statute of limitations. You buy them and you call up creditors and you say to them, you don't have to pay me.

But out of the goodness of your heart, you should? Or do you just call them up and say, you owe me money, and you hope that they'll pay you. And is it the same thing in bankruptcy court? You filed a claim and you hope the trustee doesn't see that it's out of time? And apparently, you collect on millions of dollars of these debts.

So is that what you do?

Kannon K. Shanmugam:

So, Justice Sotomayor, I do not think that that is a valid understanding of our business model, and let me explain why. First, this debt was not time-barred at the time it was purchased.

And indeed, Midland, my client, makes every effort not to purchase time-barred debt. Now, of course, they're not always correct in their assessments, and debt that is not time-barred at the time of purchase can come --

Sonia Sotomayor:

Did you have a good-faith basis in this case to believe that the debt was not time-barred --

Kannon K. Shanmugam:

Well --

Sonia Sotomayor:

-- when you filed this claim? Forget about some of the others.