Midland Funding, LLC v. Johnson

Background

A consumer, Aleida Johnson, filed for Chapter 13 bankruptcy and a debt buyer, Midland Funding, filed a written proof of claim asserting an old credit‑card debt. The proof of claim showed the last charge was over ten years earlier, beyond the six‑year state statute of limitations. Johnson objected in bankruptcy, the claim was disallowed, and she then sued Midland under the Fair Debt Collection Practices Act (the law that bans false, deceptive, unfair, or unconscionable debt‑collection practices).

Reasoning

The Court asked whether filing an obviously time‑barred proof of claim in Chapter 13 falls within the Act’s bans. The majority explained that the Bankruptcy Code defines a “claim” as a right to payment and that many States treat the underlying right as surviving the statute of limitations even if the legal remedy is barred. The Court emphasized that bankruptcy treats timeliness as an affirmative defense and gives a trustee and procedural rules responsibility to investigate and object. For those reasons, the Court concluded the filing was not false, deceptive, misleading, unfair, or unconscionable under the debt‑collection law.

Real world impact

The decision means creditors can file obvious time‑barred proofs of claim in Chapter 13 without liability under the federal debt‑collection statute, shifting the practical burden to trustees and debtors to object. The majority also noted that, if disallowed, a claim’s filing can lead to discharge and removal from credit records. The ruling does not finally resolve whether similar filings in ordinary civil suits would violate the Act.

Dissents or concurrances

Justice Sotomayor dissented, warning that debt buyers already buy stale debts and flood bankruptcy courts, that trustees and debtors are often overburdened, and that the practice is unfair and harms vulnerable consumers.