The case of Simon v. FIA Card, Services, N.A., recently decided by the Third Circuit, demonstrates the potential for conflicts between the Bankruptcy Code and the Fair Debt Collection Practices Act (“FDCPA”) and emphasizes that banks should approach bankruptcy debtors with caution.
In the Simon case, after the debtors filed a bankruptcy petition, counsel for a creditor sent the debtors’ counsel a subpoena notice and letter, in part offering to settle the claim. The debtors brought five claims against the creditor based on the letter and notice. The FDCPA generally prohibits creditors from misrepresenting that documents constitute legal process and from threatening legal action that cannot be taken. The debtors claimed that the creditor violated these provisions by violating the Federal Rules of Civil Procedure. The debtors also claimed that the creditor violated FDCPA by failing to include the requisite “mini-Miranda” warnings stating that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.”
The Third Circuit recognized that there is no consensus between the Circuits in situations where the Bankruptcy Code and the FDCPA intersect. Some courts have essentially held that the Bankruptcy Code prevails over all sections of the FDCPA. Others have held that to the extent the FDCPA and the Bankruptcy Code can be reconciled, both statutes should be enforced. The Third Circuit followed the latter line of cases and held that the debtors were entitled to pursue some of the claims based on violations of the Federal Rules of Civil Procedure. However, the Court also held that had the creditor included the mini-Miranda warnings, the creditor would have violated the Bankruptcy Code’s provisions staying the collection of debts. Thus, the Court concluded that, despite the FDCPA provision to the contrary, the creditor was not required to include the mini-Miranda warnings.
Although the Simon decision is not controlling precedent in all jurisdictions, it serves as an important reminder that special considerations arise when a debtor files a bankruptcy petition. You might be surprised to find that taking action that is normally required outside of the bankruptcy context, such as including mini-Miranda warnings under FDCPA, could actually violate the Bankruptcy Code and subject your bank to liability. Because of the myriad of issues that can arise, we recommend you consult with counsel before taking any action with respect to a customer who has filed a bankruptcy petition.