Thought Bankruptcy Canceled That Debt? Many Creditors Still Reporting Balances on Credit Reports.
But numerous banks and creditors are continuing to report discharged debt on consumers’ credit reports, which may be a violation of federal and state laws.
Although banks like to give bankruptcy a bad rap, it has been around, in one form of another, for millennia. It’s actually mentioned in the Bible. And some of the most respected American heroes have filed for bankruptcy: Thomas Jefferson, who wrote the Declaration of Independence; Abraham Lincoln, who ended the Civil War and ended slavery; and Harry Truman, who ended World War II. Even Mark Twain, John Wayne, and Willie Nelson had to file for bankruptcy when they had financial difficulties.
At the end of a bankruptcy, the court issues an order called a “discharge,” which prevents any creditors from attempting to collect the debt. Many banks, however, continue to report balances on consumers’ credit reports after a bankruptcy, as revealed in this report on credit reporting after bankruptcy.
One of the main ways to collect debts is through credit reporting. The credit bureaus keep a credit file on most Americans, where major debts like credit cards and mortgages are reported, including the balances owed. As one court has said “a creditor’s report of a debt to a credit reporting agency is a “powerful tool, designed in part to wrench compliance with payment terms from its cardholder.”
Because consumers are trying to start over and reestablish credit, they are often forced to pay these discharged debts to get their fresh start, even though there is nothing owed.
So how should an account be reported on your credit report after a bankruptcy?
First, it is important to remember that banks can continue to report the account — but they must report a $0 balance. They are not permitted to indicate that the account is owed in any way.
Second, because a credit report is also a historical record of the account, previous delinquencies are often ok to report. For example, if the account was charged off before the bankruptcy, the creditor may report that there was a charge-off, so long as it shows that the charge-off was before the date of the bankruptcy filing.
Third, banks and creditors may not obtain your credit report after a bankruptcy without your permission. Normally, a creditor to whom money is owed may obtain your credit report at any time (many people are not aware of this exception, but it is true). But if you owe nothing to the bank any more, they cannot pull your credit report.
Continuing to report an account balance after a bankruptcy is not only a violation of the Bankruptcy Code, it may also be a violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681, the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, and the Massachusetts Consumer Protection Act, called Chapter 93A.
If you have filed for bankruptcy, you can obtain your credit reports for free, one per year, from each of the three major credit bureaus (Experian, Equifax, Transunion) by calling the Annual Credit Report service at (877) 322-8228 or visiting annualcreditreport.com.
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