By: J. Ellsworth Summers, Jr. & Scott St. Amand
As most lenders and banking litigators understand, courts construe the language of the Fair Debt Collection Protection Act (FDCPA) very broadly. As we have discussed in previous posts, an initial communication to collect a debt must contain specific language that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.” The FDCPA further requires a debt collector to include a notice of the debtor’s rights within five days of the initial communication to the debtor. What is a creditor to do, however, if the debtor files for bankruptcy after the initial communication but prior to the validation notice?
Once a debtor files for bankruptcy, the automatic stay of § 362 prevents any further action “to collect, assess, or recover a claim against the debtor.” Thus, a debt collector is required by the FDCPA to send a validation notice, but is prohibited from any further efforts to collect upon the debt by the Bankruptcy Code. Which federal law controls?
Two courts have addressed this specific issue, the Seventh Circuit and the Northern District of Georgia. In the latter case of Maloy v. Phillips , the court recognized that the debt collector’s “situation was a Catch–22. One statute told him to go left, and the other right.” The debt collector erred on the side of caution, and ceased all communication with the debtor in accordance with the Bankruptcy Code. Both the Seventh Circuit and the Northern District of Georgia held that this was the correct course of action.