It's a tale as old as time for those in the industry. A consumer files a bankruptcy petition without properly listing FDCPA claims, only to later file such bankruptcy-covered claims (often to their attorney's financial benefit). Some relief from this scheme came in the Eastern District of New York (E.D.N.Y.) in the case Nunez v. Mercantile Adjustment Bureau, LLC, No. 19-CV-02962 (May 13, 2020)

What Happened?

The case involves two different consumer plaintiffs who received an almost identical collection letter from defendant. After the letters were received, one of the consumers filed for bankruptcy and obtained a discharge of their debts. On the bankruptcy petition, the consumer scheduled only one FDCPA claim, alleging it valued at $1,000 for statutory damages. This claim was exempted. Despite this, the consumer and her husband went on to file five different FDCPA lawsuits that should have been scheduled. 

The Court's Ruling

The court dismissed the FDCPA filed by the bankruptcy consumer for lack of standing. According to the court, the consumer lacks standing because the claims belong to the bankruptcy estate. The court states:

Plaintiff Khatun and her husband commenced multiple FDCPA suits against six distinct defendants, thereby frustrating a trustee who would have to "distinguish among multiple claims or multiple defendants.

This vague and misleading disclosure of scheduled assets plainly runs afoul of bankruptcy regulations.

The court also found that even if the consumer hypothetically had standing, the claims don't have merit and thus would have been dismissed. These claims included allegations of overshadowing through the letters format and the inclusion of a sentence that states  "send payment and correspondence" to a specific address; as well as a claim that including multiple addresses confuses consumers as to where disputes should be sent, despite the fact that the letter clearly identifies only one of those addresses for correspondence. 


insideARM Perspective

Let's take a quick pause to state something worth noting—the consumer likely didn't fully understand what was happening—bankruptcy filings and schedules are long and complicated documents. They were likely following the advice of their counsel.

It's also worth noting that this particular consumer's bankruptcy counsel is also listed as the consumer's attorney of record in the FDCPA suit.

Often times, the bankruptcy schedule only lists $1,000 per claim, completely disregarding the fact that these claims are usually settled for much more than that and most of that settlement money goes into the attorney's pocket, even if the settlement is reached in the earliest stage of litigation where there is no way that fees have amounted to that much. Debt collectors can't do much—defending themselves against all of the many lawsuits and threats of suit that come their way is not feasible, as they are unlikely to be awarded their defense fees even if they succeed on the merits. 

And so the loop of this scheme keeps going and going.

However, there is hope. We are seeing a trend of court decisions where the judges call out plaintiffs' counsel for wrenching the FDCPA from its original purpose—rather than protecting consumers, they've used it to bring "lawyer's cases" to help lucratively line their own pockets. There are even circumstances where the courts are beginning to sanction plaintiffs' counsel. 

Editor's Note: The iA Case Law Tracker allows you to quickly pull all those decisions in a matter of seconds. 

Why are we seeing such an influx? Because debt collectors are choosing to defend more cases. Defending these hyper-technical, bogus "lawyer's cases"—as opposed to settling on the outset—brings these cases to the judge's attention and shows them just how twisted the situation has become. These are the same judges that, when appropriate, will issue sanctions against these attorneys.

Because of this, it's no longer a no-lose game for plaintiffs' counsel. 

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