As most lenders and banking litigators understand, courts construe the language of the Fair Debt Collection Protection Act (FDCPA) very broadly. As we have discussed in previous posts, an initial communication to collect a debt must contain specific language that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.” The FDCPA further requires a debt collector to include a notice of the debtor’s rights within five days of the initial communication to the debtor. What is a creditor to do, however, if the debtor files for bankruptcy after the initial communication but prior to the validation notice?

Once a debtor files for bankruptcy, the automatic stay of § 362 prevents any further action “to collect, assess, or recover a claim against the debtor.” Thus, a debt collector is required by the FDCPA to send a validation notice, but is prohibited from any further efforts to collect upon the debt by the Bankruptcy Code. Which federal law controls?

Two courts have addressed this specific issue, the Seventh Circuit and the Northern District of Georgia. In the latter case of Maloy v. Phillips, the court recognized that the debt collector’s “situation was a Catch–22. One statute told him to go left, and the other right.” The debt collector erred on the side of caution, and ceased all communication with the debtor in accordance with the Bankruptcy Code. Both the Seventh Circuit and the Northern District of Georgia held that this was the correct course of action.

The courts found that sending the validation notice required by the FDCPA would have been yet another step forward in the statutorily created collection process, and would have in the court’s judgment “amounted to pressure on the debtor to pay,” which would have been in direct violation of the automatic stay.

Earlier this month the Third Circuit issued a complex opinion that analyzed the interplay between the Bankruptcy Code and the FDCPA. Like the court in Maloy, the Third Circuit held that the provisions of the Bankruptcy Code’s automatic stay trump the statutory requirements of the FDCPA.

Consumer protection and debt collection laws are complex and often intersect. Violations of the Bankruptcy Code and the FDCPA are potentially very costly, and knowing when to zig or when to zag requires experienced legal counsel.