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Henderson v. Weinstein & Riley, P.S., PC

2011 WL 6826117 (U.S. Dist. Ct. Dist. N.J. 2011) (Unpublished)

FDCPA; BANKRUPTCY —The Bankruptcy Act does not preclude a debtor’s claims under the Fair Debt Collection Practices Act where the claims are that a creditor was in violation of the Act by reason of actions the creditor took during the pendency of the bankruptcy proceedings.

Before a debtor filed for Chapter 7 bankruptcy, she allegedly incurred a financial obligation to a bank. The obligation was transferred to an assignee. Her bankruptcy proceedings closed. During the bankruptcy proceedings, and before her discharge, the assignee sent a collection letter to the debtor’s attorney offering to settle the disputed financial obligation either by it accepting installments or a one-time payment. It also sent a notice of examination in accordance with Federal Rule of Bankruptcy Procedure 2004 and Local Rule 2004. The debtor argued that the collection letter and the notice of examination violated “numerous and multiple” provisions of the Fair Debt Collection Practices Act (FDCPA).

The assignee moved to dismiss, arguing that the debtor’s FDCPA claim was precluded by the Bankruptcy Code and that even if the FDCPA claim was not precluded by the Bankruptcy Code, the correspondence at issue was not proscribed by the FDCPA. It also moved for sanctions.

The Court denied the assignee’s motion to dismiss, pointing out that District Courts in the Second Circuit had concluded that there was no private cause of action under Section 524(a)(2) of the Bankruptcy Code.

According to the Court, the assignee’s “reliance on [a] line of cases [put forth by it was] misplaced, however, as it requires an overly broad interpretation of their holding. ... Not all claims under the FDCPA are automatically precluded by the Bankruptcy Code.” The Court looked to Dougherty v. Wells Fargo Home Loans, Inc., 425 F. Supp.2d 599 (E.D. Pa. 2006), where “the court cited to case law from the Seventh Circuit for the proposition that FDCPA claims are not automatically precluded by the Bankruptcy Code where those claims can be determined without doing violence to the Bankruptcy Code’s purpose of adjudicating all claims in a single proceeding.”

The Court also held that Section 524 of the Bankruptcy Code did not apply to this case. The debtor’s claims required the Court to consider how debt collectors interact with debtors, not whether an automatic stay violation, discharge violation, or any other violation of the Bankruptcy Code. Beyond its citation to the non-applicable cases, the assignees never pointed to any specific provisions of the Bankruptcy Code that would otherwise preclude the debtor’s FDCPA claim. Thus, the Court ruled that the assignee’s argument of preclusion was not persuasive.

In dismissing the assignee’s argument that the correspondence at issue was not proscribed by the FDCPA, the Court found the assignee was not directly addressing the debtor’s contentions. Instead, it was directing the Court’s attention to cases filed by the debtor’s attorney in which the same, or substantially the same, complaints concerning notice of examinations and other communications were examined. Because the Court denied the assignee’s motion to dismiss, the Court also denied its motion for sanctions.

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