STALE DEBT CLAIM - FILING A PLENARY ACTION VERSUS CHAPTER 13 BANKRUPTCY - THE DISSENT

MIDLAND FUNDING, LLC v. JOHNSON, No. 16–348, US SUPREME COURT, Decided May 15, 2017

JUSTICE SOTOMAYOR, with whom JUSTICE GINSBURG and JUSTICE KAGAN join, dissenting.

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First, the majority contends, structural features of the bankruptcy process reduce the risk that a stale debt will go unnoticed and thus be allowed. Ante, at 6–7. But there is virtually no evidence that the majority’s theory holds true in practice. The majority relies heavily on the presence of a bankruptcy trustee, appointed to act on the debtor’s behalf and empowered to (among other things) object to claims that he believes lack merit. See 11 U. S. C. §§704(a)(5), 1302(b). In the majority’s view, the trustee’s gatekeeping role makes it “considerably more likely that an effort to collect upon a stale claim in bankruptcy will be met with resistance, objection, and disallowance.” Ante, at 7. The problem with the majority’s ipse dixit is that everyone with actual experience in the matter insists that it is false. The Government, which oversees bankruptcy trustees, tells us that trustees “cannot realistically be expected to identify every time-barred . . . claim filed in every bankruptcy.” Brief for United States as Amicus Curiae 25–26; see also Resurgent Complaint ¶43 (“Filing objections to all of [one collector]’s unenforceable claims would clog the docket of this Court and other courts with objections to frivolous claims”). The trustees themselves (appearing here as amici curiae) agree, describing the practice as “wasteful” and “exploit[ative].” Brief for National Association of Chapter Thirteen Trustees as Amicus Curiae 12. And courts across the country recognize that Chapter 13 trustees are struggling under a “deluge” of stale debt. Crawford, 758 F. 3d, at 1256.

Second, the other features of the bankruptcy process that the majority believes will serve as a backstop against frivolous claims are even less likely to do so in practice. The majority implies that a person who files for bankruptcy is more sophisticated than the average consumer debtor because the initiation of bankruptcy is a choice made by a debtor. Ante, at 6. But a person who has filed for bankruptcy will rarely be in such a superior position; he has, after all, just declared that he is unable to meet his financial obligations and in need of the assistance of the courts. It is odd to speculate that such a person is better situated to monitor court filings and lodge objections than an ordinary consumer. The majority also suggests that the rules of bankruptcy help “guide the evaluation of claims.” Ibid. But the rules of bankruptcy in fact facilitate the allowance of claims: Claims are automatically allowed and made part of a plan unless an objection is made. See 11 U. S. C. §502(a). A debtor is arguably more vulnerable in bankruptcy—not less—to the oversights that the debt buyers know will occur.

Finally, the majority suggests, in some cases a consumer will actually benefit if a claim for an untimely debt is filed. Ante, at 7–8. If such a claim is filed but disallowed, the majority explains, the debt will eventually be discharged, and the creditor will be barred from collecting it. See §1328(a). Here, too, practice refutes the majority’s rosy portrait of these proceedings. A debtor whose trustee does not spot and object to a stale debt will find no comfort in the knowledge that other consumers with more attentive trustees may have their debts disallowed and discharged. Moreover, given the high rate at which debtors are unable to fully pay off their debts in Chapter 13 proceedings, see Porter, The Pretend Solution: An Empirical Study of Bankruptcy Outcomes, 90 Texas L. Rev. 103, 111–112 (2011), most debtors who fail to object to a stale claim will end up worse off than had they never entered bankruptcy at all: They will make payments on the stale debts, thereby resuscitating them, see supra, at 6–7, and may thus walk out of bankruptcy court owing more to their creditors than they did when they entered it. There is no benefit to anyone in such a proceeding—except the debt collectors.

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