The Court of Appeals for the Fourth Circuit on Friday partially reversed the dismissal of a Fair Debt Collection Practices Act case over whether the plaintiff meets the statute’s definition of “consumer” and whether the debt is still a debt.
The background: The lawsuit was filed after the defendant, a servicing corporation, sent two letters to the plaintiff concerning his residential mortgage loan. The plaintiff, who had previously filed for Chapter 7 bankruptcy, had received a discharge order. More than five years later, the plaintiff received a letter from the defendant stating that it was attempting to collect on the loan. The letter included language that, even though the plaintiff was no longer personally liable due to bankruptcy, the letter was part of an effort to enforce the mortgage lien against the property.
- The plaintiff filed a class-action lawsuit, arguing that these letters violated both the FDCPA and a similar West Virginia law, claiming that the defendant was still attempting to collect a debt, even though the debt was no longer legally enforceable as a personal obligation.
The ruling: The Court of Appeals ruled that the district court had erred in dismissing the case. The key issue revolved around whether the plaintiff was still considered a “consumer” under the FDCPA after his Chapter 7 discharge. The court found that, despite the discharge, the plaintiff retained a “debt” as defined under the FDCPA because the mortgage lien on the property remained enforceable. The ruling emphasized that a bankruptcy discharge eliminates personal liability but does not extinguish a creditor’s right to enforce a lien on property.
- In its opinion, the court referenced the Supreme Court’s decision in Johnson v. Home State Bank, which clarified that the discharge of personal liability in a bankruptcy case does not eliminate a creditor’s ability to enforce a lien. The Fourth Circuit found that the plaintiff, therefore, remained a “consumer” under the FDCPA, and the defendant’s actions could still be considered debt collection activities, even though they were attempting to enforce the lien rather than collect personal liability.
- The court also held that the plaintiff had plausibly alleged that the defendant was engaging in unfair debt collection practices by charging late fees higher than allowed by the mortgage agreement and refusing to credit payments properly. However, the court agreed with the district court that the allegations related to deceptive practices were insufficient.
