In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

No. 19-1296 

MABEL L. HEREDIA, 

Plaintiff-Appellant, 

v.

CAPITAL MANAGEMENT SERVICES, L.P., 

Defendant-Appellee. 

____________________ 

Appeal from the United States District Court for the 

Eastern District of Wisconsin. 

No. 1:17-cv-00284-WCG — William C. Griesbach, Judge. 

____________________ 

ARGUED SEPTEMBER 20, 2019 — DECIDED NOVEMBER 8, 2019 

____________________ 

Before WOOD, Chief Judge, and MANION and ROVNER, Circuit Judges. 

ROVNER, Circuit Judge. Capital Management Services, L.P. 

(CMS) is a debt collector, and therefore regularly sends out 

dunning letters to debtors hoping to collect past-due debts. 

The Fair Debt Collection Practices Act (FDCPA) highly regulates the content of those letters to prevent debt collectors 

from using abusive practices that prey on vulnerable debtors. 

See 15 U.S.C. § 1692(e). Mabel L. Heredia received four 
2 No. 19-1296 

collection letters from CMS—and claims that the language in 

this correspondence violated the FDCPA. CMS disagreed and 

filed a motion to dismiss under Fed. R. Civ. P. 12(b)(6), which 

the district court granted. Upon our de novo review (see 

Marquez v. Weinstein, Pinson & Riley, P.S., 836 F.3d 808, 810 

(7th Cir. 2016)), we find that Heredia has plausibly alleged 

that the dunning letter violated the FDCPA. We therefore reverse the order dismissing the matter and remand to the district court for further proceedings. 

I. 

Because this case comes before us on a motion to dismiss, 

we must accept as true all well-pleaded factual allegations 

and draw all reasonable inferences in favor of the plaintiff.

Marquez, 836 F.3d at 810. Generally, the question of whether a 

disputed statement is false, deceptive, or misleading is a factladen one and therefore a district court may not dismiss a 

complaint unless the disputed statement is plainly, on its face, 

not misleading or deceptive. Dunbar v. Kohn Law Firm, S.C., 

896 F.3d 762, 765 (7th Cir. 2018). In Marquez, we noted that: 

[I]n determining whether a statement is confusing or misleading, a district court must tread 

carefully because district judges are not good 

proxies for the ‘unsophisticated consumer’ 

whose interest the statute protects. Accordingly, Rule 12(b)(6) dismissal on that issue is appropriate only if there is no set of facts consistent with the pleadings under which the 

plaintiffs could obtain relief. 
No. 19-1296 3

Marquez, 836 F.3d at 812 (internal citations omitted). With this 

standard in mind, we turn to the specifics of this case. 

II. 

Like most debt collectors, CMS sends out form letters to 

debtors hoping to convince them to pay what they owe on 

their debt. But, of course, most debt collectors, in reality, 

would be happy to receive any amount of money from a 

debtor. This is so because, by the time a debt collector gets 

involved in the collection process, many of the debts will be 

unrecoverable. Although CMS sends form letters, it personalizes those letters, offering an individualized payment option, 

and often multiple options, to debtors to clear their debt. For 

example, CMS sent a letter to Heredia, dated November 11, 

2016, which stated: 

In an effort to liquidate as many files as possible, 

we are making the following settlement offers: 

A. 29% reduction of your present balance 

to the amount of $1343.63, if paid in full on or 

before 11/30/2016. (A savings of: $548.80) 

B. 24% reduction of your present balance 

to the amount of $1438.25. The first payment of 

$719.13 or more is due on or before 11/30/2016. 

The second and final payment of $719.12 or 

more is due on or before 12/30/2016. (A savings 

of: $454.18) 

C. 19% reduction of your present balance 

to the amount of $1532.87. The first payment of 

$510.96 or more is due on or before 11/30/2016. 
4 No. 19-1296 

The second payment of $510.96 or more is due 

on or before 12/30/2016. The third and final 

payment of $510.95 or more is due on or before 

01/30/2017. (A savings of $359.56) 

*** 

Settling a debt for less than the balance owed 

may have tax consequences and Discover may 

file a 1099C form. We cannot provide you with 

tax advice. If you have any questions, Discover 

encourages you to consult a tax advisor of your 

choosing. 

R. 32 at 25. CMS sent Heredia three other letters dated October 5, 2016, December 7, 2016, and January 5, 2017, but the 

letter above is the most pivotal to the resolution of this matter, 

as we will explain below. 

The language at the crux of this lawsuit is the part of the 

sentence which contains the following six words: “Discover 

may file a 1099C form.” (We will refer to this as the “1099C 

Clause.”) That statement does not occur in a vacuum, but rather, it is the clause that follows on the heels of the one stating 

that “[s]ettling a debt for less than the balance owed may have 

tax consequences.” (We will refer to this as the “Tax Consequences Clause.”) The question presented by this lawsuit is 

whether the 1099C Clause violated the FDCPA. 

Heredia alleged that CMS violated sections 1692e and 

1692f of the FDCPA. Language in a dunning letter violates 

section 1692e of the FDCPA if the creditor used false, deceptive, or misleading representation or means in connection 

with the collection of debt. 15 U.S.C. § 1692e(10). And under 

section 1692f, a debt collector may not use unfair or 
No. 19-1296 5

unconscionable means to collect or attempt to collect any 

debt. 15 U.S.C. § 1692f. The language of a collection letter can 

be literally true and still be misleading in a way that violates 

the Act. O'Boyle v. Real Time Resolutions, Inc., 910 F.3d 338, 344 

(7th Cir. 2018). When evaluating “false, deceptive or misleading” or “unfair or unconscionable,” we view the disputed language from the objective point of view of an “unsophisticated 

debtor.” In this circuit we have had much to say about this 

hypothetical unsophisticated debtor. Her knowledge is not as 

great as that of a federal judge but is more than that of the 

least sophisticated consumer. Pettit v. Retrieval Masters Creditor Bureau, Inc., 211 F.3d 1057, 1060 (7th Cir. 2000). She is “uninformed, naive, or trusting,” but at the same time “possesses 

rudimentary knowledge about the financial world, is wise 

enough to read collection notices with added care, possesses 

‘reasonable intelligence,’ and is capable of making basic logical deductions and inferences.” Id. (internal citations omitted). And although “our unwary debtor may tend to read collection letters literally, he does not interpret them in a bizarre 

or idiosyncratic fashion.” Id. “The Act protects the unsophisticated debtor, but not the irrational one.” White v. Goodman, 

200 F.3d 1016, 1020 (7th Cir. 2000). 

As is often the case, a good place to begin our legal analysis is with that which is settled. Recently, in Dunbar, 896 F.3d 

at 762, we evaluated a very similar tax consequences clause. 

That clause stated, “NOTICE: This settlement may have tax 

consequences.” Id. at 764. We held that this “tax-consequences 

warning is literally true and not misleading under the objective ‘unsophisticated consumer’ test,” and thus did not violate 

the FDCPA. Id. at 768. This was so even though the debtors at 

issue in that particular case were insolvent and would not 

have had to pay taxes on any discharged debt. Id. at 764. We 
6 No. 19-1296 

noted that the word “may” does not mean “will,” and that 

therefore the statement is true on its face. Id. at 765. We also 

found that the clause was not misleading because, among 

other reasons, an insolvent debtor can become solvent at any 

moment and “a debt collector has no reason or way to know 

whether an individual debtor is solvent or insolvent at a given 

time.” Id. at 766. In other words, by saying “may” rather than 

“will,” the debt collector described an accurate scenario. Settlement may or may not have tax consequences depending on 

the financial situation of the debtor, and that information is 

only in the hands of the debtor herself, and not the debt collector. 

Information about filing a 1099C form, on the other hand, 

is information within the knowledge of the creditor. This 

makes the 1099C Clause materially different than the tax consequences clause at issue in Dunbar. Only the debtor knows 

whether, given her financial situation as a whole, she will 

have to pay taxes on the forgiven debt. The creditor, however, 

knows whether it will have to file a 1099C form or not. The 

Internal Revenue Service requires a creditor to file a 1099C 

form if it has forgiven at least $600 in principal. 26 C.F.R. § 

1.6050P-1(a) & (d)(2)–(3); 26 U.S.C. § 6050P. The creditor 

knows for certain whether it is offering to forgive more or less 

than $600 in principal. The debtor, on the other hand, may 

have a difficult time determining how much she owes in principal versus interest, as the dunning letter may not identify 

the amount of each. This was certainly the case in CMS’s letter. Although we know that Heredia owed a balance of 

$1,892.43, even now as the case has wound its way to this 
No. 19-1296 7

court, we still do not have a clear statement about the amount 

of principal that CMS was willing to forgive.1 

To summarize the law, it is permissible for a creditor to 

make a “may” statement if there is any possibility that an 

event might happen. Dunbar, 896 F.3d at 765 (“An unsophisticated consumer would not understand the word ‘may’ to 

mean ‘will.’”). And thus Dunbar holds that it is permissible for 

a creditor to say, “Settling a debt for less than the balance 

owed may have tax consequences.” Id. at 768. 

On the other hand, it is impermissible for a creditor to 

make a “may” statement about something that is illegal or impossible. And so, for example, a creditor may not state that “a 

court could allow ... attorney fees” where the contract between the debtor and creditor did not provide for them. Lox 

v. CDA, Ltd., 689 F.3d 818, 824, 826 (7th Cir. 2012). Nor may a 

creditor state that late charges might apply when legally, they 

could not. Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d 362, 

367 (7th Cir. 2018). 

Although it is not technically illegal or impossible for Discover to file a 1099C form with the IRS if the amount is under 

$600, “a collection letter can be literally true” and still misleading. Dunbar, 896 F.3d at 765. Heredia alleges, and the defendants do not dispute, that Discover would never file a 

1099C form with the IRS unless required to do so by law—

 

1 Because we do not know which portion of the offer was principal, we 

cannot make a determination as to whether the December and January 

letters also contained false, deceptive, or misleading statements. In December, CMS made a single offer to save Heredia $738.05 and in January, 

the offer stated that she would save $927.29. We do not know if the amount 

of principal forgiven in either case would have been $600 or more. This is 

a matter for fact-finding on remand, if it becomes relevant. 
8 No. 19-1296 

that is, unless it was forgiving $600 or more of principal. In 

the case of the November 11, 2016 letter, Discover would 

never file a 1099C form regardless of which settlement offer 

Heredia accepted, because in no circumstances would Discover be forgiving at least $600 in principal (the amounts it 

would be forgiving would be $548.80, $454.18, or $359.56 in 

combined interest and principal, depending on which option 

Heredia chose).2 In regard to the November 11 letter, therefore, Heredia could plausibly allege that it is, in fact, misleading to state that Discover may file a Form 1099C, when it never 

would. And unlike the situation in Dunbar, the debt collector 

has within its own knowledge all of the information it needs 

in order to know whether such a form will or will not be required. 

In this case, CMS was sending out individualized form letters with settlement offers tailored to each recipient’s debt. It 

had both the knowledge (or at least the ability to acquire the 

knowledge) and capability to include the 1099C Clause in situations in which it would be forgiving at least $600 in principal and to exclude the clause for less than $600. This was not 

true in the Dunbar case, where the debt collector could not 

 

2 The December 7, 2016 letter offered to settle Heredia’s debt for $1,154.38, 

thus forgiving $738.05, and the January 5, 2017 letter offered to settle the 

debt for $965.14, thus forgiving $927.29. CMS did not demarcate—either 

in the letters themselves or in briefing—how much of this forgiveness was 

principal and how much interest. Both of these letters also contained the 

statement “Discover may file a 1099C form.” The complaint alleges that 

the settlement offers in these third and fourth letters, although offering 

total reductions over $600, did not reduce the amount of principal owed 

by $600 or more. Whether the 1099C Clauses in these later letters were 

misleading is a matter to be determined on remand, if necessary to the 

resolution of the case. 
No. 19-1296 9

have known whether any particular debtor would have a tax 

liability or not. The district court relied on the reasoning of the 

Dunbar case without recognizing the material distinction between the Tax Consequences Clause and the 1099C Clause. 

Heredia v. Capital Mgmt. Servs., L.P., No. 17-C-284, 2019 WL 

288122, at *4 (E.D. Wis. Jan. 22, 2019); R. 43 at 9. 

Moreover, the language is misleading in a material way. 

The reference to a report to the IRS may instill angst in the 

unsophisticated debtor. The district court focused on whether 

the 1099C Clause might cajole a debtor into paying more of 

the debt to avoid the economic consequences of tax liability, 

without considering the psychological coercion that a threat 

to involve the IRS might have on such a consumer. See, e.g. 

Schultz v. Midland Credit Mgmt., Inc., 905 F.3d 159, 162 (3d Cir. 

2018) (agreeing with plaintiffs that by including the language 

about reporting to the IRS, the debt collector presented a false 

or misleading view of the law designed to intimidate the 

plaintiffs into paying the outstanding debts). 

Our decision is in line with this recent decision of the 

Third Circuit in Schultz. The collection letter at issue in that 

case stated, “We will report forgiveness of debt as required by 

IRS regulations. Reporting is not required every time a debt is 

canceled or settled, and might not be required in your case.” 

Id. at 161. The Schultz court held that such language, even with 

the conditional statement that not all debt would be reported, 

“presented a false or misleading view of the law—one designed to scare or intimidate the [debtors] into paying the outstanding debts listed on the debt collection letters even 

though [the debt collector] knew that any discharge of the 

[debtor’s] debt would not result in a report to the IRS.” Id. at 

162. See also Foster v. AllianceOne Receivable Mgmt., Inc., 
10 No. 19-1296 

No. 15-cv-11108, 2016 WL 1719824, at *1, 2 (N.D.Ill. Apr. 28, 

2016) (finding the “mention of the IRS in a situation where 

there is no set of circumstances in which the IRS would be involved could mislead ‘a person of modest education and limited commercial savvy,’” even where the dunning letter listed 

the balance on the account as $718.96 and stated, “[p]lease be 

advised that any settlement which waives $600.00 or more in 

principal of a debt may be reported to the Internal Revenue 

Service by our client.”); Good v. Nationwide Credit, Inc., 55 

F. Supp. 3d 742, 744, 748–49 (E.D. Pa. 2014) (drawing all reasonable inferences in favor of the plaintiffs and finding the 

following language deceptive and misleading: “[The Creditor] is required to file a form 1099C with the Internal Revenue 

Service for any cancelled debt of $600 or more” where the 

creditor offered to allow the plaintiff to settle his $613 debt for 

$183.90). CMS does point to one district court opinion in 

which the court found that a 1099C clause was not misleading, but in that case the dunning letter combined two pieces 

of information—first, the amount of debt, which was clearly 

under $600, and second the statement that “any settlement 

write-off of $600 or more may be reported to the Internal Revenue Service by our client.” Rhone v. AllianceOne Receivables 

Mgmt., Inc., No. 1:14-CV-02034-JMS, 2015 WL 4758786, at *2 

(S.D. Ind. Aug. 12, 2015). This type of letter arguably places 

the knowledge back in the hands of the debtor by allowing 

the debtor to determine, from the face of the letter, whether 

the conditional reporting will or will not happen in that particular instance. Moreover, and importantly, we cannot make 

any predictions about whether this court would find the 
No. 19-1296 11

language at issue in any of these district court opinions misleading in light of our currently evolving precedent.3

III. 

For the reasons we discussed, applying the requisite presumptions in a motion to dismiss, here we cannot say that 

“there is no set of facts consistent with the pleadings under 

which [Heredia] could obtain relief.” Marqeuz, 836 F.3d at 812.

At least for the November 11 dunning letter, it is certain that 

Discover would never file a 1099C form, as the amount of debt 

CMS was proposing to discharge in each offer was less than 

$600. Heredia has plausibly alleged that a statement that CMS 

might file a 1099C form is misleading. 

Because these questions of whether particular statements 

are deceptive or misleading, however, are almost always 

 

3 The remainder of the cases that CMS lists as “similar,” in fact, are not 

similar enough to have any bearing on this case, as they address the permissibility of a tax consequences clause (which we held in Dunbar was 

permissible), rather than the permissibility of a 1099C clause. Taylor v. I.C. 

Sys., Inc., No. 17 CV 00541, 2018 WL 3637354, at *1 (N.D. Ill. July 30, 2018);

Ceban v. Capital Mgmt. Servs., L.P., No. 17CV4554ARRCLP, 2018 WL 

451637, at *1 (E.D.N.Y. Jan. 17, 2018); Remington v. Fin. Recovery Servs., Inc., 

No. 3:16-CV-865 (JAM), 2017 WL 1014994, at *1 (D. Conn. Mar. 15, 2017); 

Taylor v. Fin. Recovery Servs., Inc., 252 F. Supp. 3d 344, 347 (S.D.N.Y. 

2017), aff'd, 886 F.3d 212 (2d Cir. 2018); but see Moses v. LTD Fin. Servs. I, 

Inc., 275 F. Supp. 3d 893, 894–95 (N.D. Ill. 2017) (finding, on summary 

judgment, that the following language was not misleading, “IRS requires 

certain amounts that are discharged as a result of the cancellation of debt 

to be reported on a Form 1099–C. You will receive a copy of the Form 

1099–C if one is required to be filed with the IRS,” where the plaintiff owed 

$951.29 and the debt collector offered him the opportunity to pay $237.82 

to resolve the debt without identifying the amount of principal and interest). 
12 No. 19-1296 

questions of fact, the ultimate decision on this question is one 

in the province of a district court. We therefore VACATE the 

judgment of the district court and REMAND this case for further proceedings consistent with this opinion.