A Closer Look At Midland Funding V. Johnson

By Phoebe Winder, Andrew Glass, Gregory Blase and Sean Higgins (June 15, 2017, 12:32 PM EDT) -- Creditors (and, more specifically, buyers of distressed debt) let out a collective sigh of relief last month when the U.S. Supreme Court held that filing of a proof of claim for unextinguished time-barred debt is not a per se violation of the Fair Debt Collection Practices Act. Midland Funding LLC v. Johnson[1] addressed the application of the FDCPA to proofs of claim in bankruptcy proceedings. In ruling in favor of the creditor, the court affirmed that the statute of limitations is an affirmative defense to payment, which may be raised by the debtor or trustee in a claims objection, but does not prevent the creditor from filing a claim in the first instance. Although a positive development for financial institutions, a closer analysis of the majority opinion reveals a number of issues meriting careful consideration. Among other points discussed below, claimants should examine state law before filing a claim to determine whether the applicable statute of limitations has merely barred suit or extinguished the underlying debt....

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