Your Rights When a Debt Buyer Files a Claim

Debt Buyers vs. Original Creditors

When a credit card company, medical provider, or other lender gives up on collecting a debt, they often sell it to a debt buyer -- a company whose entire business model is purchasing defaulted debts for pennies on the dollar and then collecting the full face value.

Major debt buyers include Midland Credit Management, Portfolio Recovery Associates (PRA), LVNV Funding, Encore Capital Group, and Cavalry SPV. These companies file millions of proofs of claim in bankruptcy cases every year.

The critical difference: the original creditor had a direct relationship with you and has complete records. A debt buyer purchased a spreadsheet of account data -- often with incomplete records, missing account agreements, and no proof of the original terms.

The Assignment Chain -- Who Actually Owns the Debt?

Before a debt buyer can enforce a claim against you, they must prove they actually own it. The assignment chain is the documented trail showing how the debt moved from the original creditor to the current holder. This may involve multiple transfers:

1. Original creditor sells to Debt Buyer A (first assignment)
2. Debt Buyer A sells to Debt Buyer B (second assignment)
3. Debt Buyer B files a proof of claim in your bankruptcy

Each link in the chain requires a valid assignment document. If any link is missing or defective, the debt buyer cannot prove standing to collect.

Proof of Claim Requirements -- What They Must Provide

Under Bankruptcy Rule 3001(c), a proof of claim filed by a debt buyer must include specific documentation:

• Name of the entity from whom the debt was acquired
• Date of the last transaction or last payment on the account
• Original account number (last 4 digits may be redacted)
• Charge-off date and amount
• Itemization of interest, fees, and charges accrued since the last statement
• For open-end credit: a copy of the credit agreement or last account statement
• Evidence of the assignment chain documenting transfer of ownership

Under Bankruptcy Rule 3001(c)(2)(D), if the claim is based on an open-end credit agreement and the claimant does not have a copy, they must explain why and describe the efforts made to obtain it.

How to Object to a Debt Buyer's Claim

Step 1: Review Every Proof of Claim

Check the claims register in your case (available on PACER or from your attorney). For each claim filed by a debt buyer, review:

• Is the amount correct? Does it match what you owed?
• Is the credit agreement attached? Is it yours?
• Is the assignment chain complete?
• Does the claim include the required itemization?
• Has the statute of limitations expired on the underlying debt?

Step 2: File a Written Objection

File your objection with the bankruptcy court before the claims objection deadline. Your objection should specifically identify:

• The claim number and claimant name
• Each deficiency (missing documentation, broken chain, wrong amount, stale debt)
• The legal basis for each objection (Rule 3001(c), state statute of limitations, etc.)
• A request that the claim be disallowed or reduced

Step 3: Attend the Hearing

The court will schedule a hearing on your objection. At the hearing:

• The burden of proof shifts to the debt buyer once you file a valid objection
• The debt buyer must produce evidence proving the claim
• Many debt buyers default -- they do not show up or produce documentation
• If the debt buyer cannot meet their burden, the claim is disallowed

Statute of Limitations on Debt

Every state has a statute of limitations (SOL) on debt collection. Once the SOL expires, the debt is "time-barred" -- it still exists but cannot be legally enforced through a lawsuit. Common statutes of limitations:

• Credit card debt: 3-6 years in most states (varies by state)
• Medical debt: 3-6 years in most states
• Written contracts: 4-10 years depending on state
• Oral agreements: 2-6 years depending on state

The SOL clock typically starts from the date of last payment or last account activity. Check your state's specific statute at debtstatuteoflimitations.com.

Midland Funding v. Johnson (2017) -- What It Means for You

Midland Funding, LLC v. Johnson, 581 U.S. 224 (2017), was a Supreme Court case addressing whether filing a proof of claim on time-barred debt in bankruptcy violates the FDCPA.

The ruling: The Supreme Court held 5-3 that filing a proof of claim on stale debt in bankruptcy does NOT violate the FDCPA. The Court reasoned that bankruptcy has its own system for handling invalid claims (the claims objection process) and that the FDCPA was not designed to police the bankruptcy claims process.

What this means for you:

• Debt buyers can file claims on old, expired debts without FDCPA liability
• YOU must actively object -- if you do nothing, the claim may be allowed
• The burden is on you (or your attorney) to review claims and file objections
• This makes claim review one of the most important tasks in any bankruptcy case

FDCPA Protections That Still Apply

While Midland limited FDCPA claims in the bankruptcy context, the FDCPA still protects you in many ways:

• Pre-filing collection: All FDCPA protections apply to collection activity before bankruptcy is filed
• Automatic stay violations: Collecting after your bankruptcy is filed violates both the automatic stay (11 U.S.C. 362) and may violate the FDCPA
• Misrepresentation: A debt buyer that misrepresents the amount owed, the identity of the creditor, or the character of the debt on a proof of claim may still face sanctions
• Post-discharge collection: Attempting to collect a discharged debt violates the discharge injunction (11 U.S.C. 524) and the FDCPA

Why This Matters in Chapter 13

In a Chapter 13 case, every dollar paid to a debt buyer on an invalid claim is a dollar NOT going to your legitimate creditors or back to you. If a debt buyer files a $5,000 claim based on stale debt you do not owe, and it goes unchallenged:

• Your Chapter 13 plan pays the debt buyer that $5,000 (or a percentage of it)
• Your plan may last longer than necessary to accommodate the extra debt
• Your legitimate creditors receive less because the pot is diluted
• You may pay higher total plan payments over the life of the plan

Objecting to invalid claims is not just your right -- it directly affects the cost and duration of your bankruptcy.