2nd Circuit Rules That Consumers In Bankruptcy Can Still Sue Under The FDCPA

In a decision published on January 4, 2016 the Second Circuit District Court ruled in Garfield v. Ocwen Loan Servicing, LLC, 15-527 (2d Cir. Jan. 4, 2016) that a debtor who has had their debt discharged through bankruptcy can still sue a debt collector who violated the Fair Debt Collector Practices Act (FDCPA) in Federal District Court rather than seeking relief from the bankruptcy court.

This case concerned a consumer who had entered bankruptcy proceedings but had continued to make scheduled payments to her creditor in order to prevent foreclosure. After the bankruptcy had discharged the debt her creditor continued to demand payments from her and reported her account to the credit reporting bureaus when she rightfully refused to pay for a debt that no longer existed. When the consumer attempted to sue in federal district court for violations of the FDCPA the district court initially ruled that the consumer was limited to the bankruptcy court for relief and could not sue under the FDCPA.

The Second Circuit reversed this decision and found that there was no conflict between the bankruptcy statute and the FDCPA. In particular the Circuit found that consumers emerging from bankruptcy were especially vulnerable to improper practices by debt collectors and needed the protections that the FDCPA provided. As such even consumers in the midst of bankruptcy as well as those emerging from bankruptcy could sue for FDCPA violations committed in Federal District Court as well as seek relief from bankruptcy courts where appropriate.

It had long been open to question in New York if FDCPA claims could still be brought after a consumer had entered bankruptcy proceedings. Bankruptcy court is mostly about determining whether and how to discharge debt but it has relatively few remedies for unfair or deceptive practices by debt collectors who may or may not be creditors. This is a form of relief which the 3rd and 7th Circuits had allowed but until this decision it was unclear if it would be endorsed by the New York courts as well.

Consumers in bankruptcy who are being harassed or abused by a debt collector now clearly have the right to bring suit for FDCPA violations in New York Federal District Court. An FDCPA case is a potent tool to stop the harassment of debt collectors and consumers who are victims of debt collector abuse can recover their damages in addition to a statutory award.