SCOTUS Sets Oral Argument in Jevic For Nov. 28, 20016

For those of you watching for a ruling from the Supreme Court in In re Jevic, mark your calendars! Oral argument has been set for Monday, November 28, 2016.

44303734_l.jpgIf you haven’t been tracking the case, this is an excellent time to get up to speed.

Simply put, the Supreme Court granted certiorari in Czyzewski v. Jevic Holding Corp. to decide whether “structured dismissals” can be used to wrap up a Chapter 11 bankruptcy case.  A structured dismissal is a creative (or, depending on your perspective, inappropriate) solution that bankruptcy lawyers have come developed to resolve a case–often following a sale of substantially all of the company’s assets–without the delay and expense of a formal chapter 11 plan process but with more elegance and closure than creditors would have if the case were simply dismissed. The problem? Nothing in the Bankruptcy Code contemplates “structured dismissals.” And often they include “gifting” of assets from a secured creditor’s collateral to various unsecured creditors. Unhappy creditors who are left empty-handed have complained that these agreements violate the priority of creditor distributions called for under Section 507 of the Bankruptcy Code.

For a more detailed discussion, you might want to read Rochelle’s Daily Wire, published by the American Bankruptcy Institute.  Or if you want to go really crazy, you can read all the pleadings on the Supreme Court’s blog.

Mette H. Kurth

Zombie Debt: The Ultimate Survival Guide



Fall has returned. Maybe you’re making ghost costumes, stocking up on Halloween candy, or tuning in to Season 7 of The Walking Dead. If you’re the Supreme Court, your mind is on zombie debt.

What Is Zombie Debt

I first encountered zombie debt a few months ago when a co-worker asked me to look at a solicitation letter her daughter had received. The letter promised her daughter could get out of paying her student loans (for a fee) by defaulting and hiring the “servicer” to run the clock until the statute of limitations passed. Mom wanted to know if the offer was too good to be true.

First, if you have to ask whether something is a scam, it probably is. Moreover, although we all think of very old, time-barred debt as “uncollectable,” legally speaking, the debt is not necessarily dead; it is only nearly dead. In virtually all states, the statute of limitations does not actually extinguish the debt. Instead, it makes the debt much harder to collect by limiting the creditor’s actions or serving as an affirmative defense that may be asserted in a collection action.

This old, “uncollectable” zombie debt can come back after you. Debt scavengers know this and may purchase zombie debt portfolios for next to nothing and then look for ways to collect.

Fighting Zombie Debt under the Fair Debt Collection Practices Act

These debt collectors must take care to comply with the Fair Debt Collection Practices Act (FDCPA). Federal courts have issued decisions holding that suing, or even collecting, on time-barred debt may violate the FDCPA under a variety of theories. For example, such collection activity could be unconscionable; it may not be authorized or permitted by law; or it may be misleading in various ways.

Can Bankruptcy Stop Zombie Debt….?  The SCOTUS Weighs In.

But what happens to zombie debt when the debtor files a bankruptcy case is the subject of significant confusion, disagreement, and conflicting case law. Because of this, the Supreme Court bravely granted certiorari this month in Midland Funding, LLC v. Aleida Johnson, a decision of the Eleventh Circuit that held that filing a proof of claim in a bankruptcy case on a time-barred debt violates the FDCPA.

The Eleventh Circuit case is at odds with the majority view espoused by the Second, Eighth and Ninth Circuit Courts of Appeal, which hold that the filing of a proof of claim that is accurate but based on a time-barred debt does not violate the FDCPA. Or in any event, that such an application of the FDCPA is precluded by the Bankruptcy Code. (The Fourth Circuit arrives at the same result by a different route, holding that the filing of the time-barred claim is actionable under but does not violate the FDCPA).

There will undoubtedly be numerous scholarly articles written on the nuanced legal questions that the Supreme Court will be considering. When you parse through the issues, they center on two key questions.

The first question is what, precisely, is the definition of a bankruptcy claim? A claim is generally understood to be a right to payment recognized under state law. If time-barred debts are not “rights to payment” within the meaning of applicable state law, then filing a claim based on such debt could be an “abusive practice” that violates the FDCPA

The second question is whether the Bankruptcy Code precludes a FDCPA action based on the filing of a bankruptcy claim for a time-barred debt. In other words, is such a claim inherently at odds with and precluded or displaced by the Bankruptcy Code’s separate claims allowance and objection process?

I will be closely watching the Supreme Court’s decision on these questions and will be updating you on any new developments and their impact on the bankruptcy claims process.

Mette H. Kurth