For most consumers, bankruptcy is seen as a last resort — one that is supposed to reset their financial possibilities and allow them to start over again. Bankruptcy is monitored and approved by a court order — and creditors seeking to get around the fair credit reporting laws have found some sneaky ways to harm consumers.
Thanks to recent court cases, two of the least consumer friendly banks have agreed to delete credit report notices sent to credit reporting agencies after consumer bankruptcy. While bankruptcy is supposed to be a clean slate, Bank of America and J.P. Morgan Chase & Co. had consistently been reporting old accounts as “charged off” or “past due” even after the consumer filed.
These post-bankruptcy reports damaged the consumer’s ability to receive new credit or favorable terms, as the “charged off” status is seen as a negative. By reporting this information to a credit agency in this way. The banks were arbitrarily removing some of the protections afforded by bankruptcy law and harming their former customers in a variety of ways.
While this is great news for consumers, the banks did not do it benevolently; both banks, along with GE Synchrony Bank, Credit One Bank and Citigroup were sued by consumers. In each instance, the consumer had filed for bankruptcy protection and had the debt in question legally canceled via a discharge order, but the bank ignored the order and continued to erroneously list the data and harm the consumer.
The plaintiffs filed in New York via the U.S. Bankruptcy Court, arguing that the Fair Credit Reporting Act requires the banks to promptly correct consumer information – even if the account has been sold to another collector. When the banks failed to update and correct these records, the consumer’s credit scores were adversely and unfairly impacted.
By refusing to update the credit records, the banks damaged the consumer’s credit scores, which impacted their ability to get loans, insurance and even secure employment. According to plaintiff attorney Adam R. Shaw, by showing the debts as charged off, the banks made the affected consumer’s reports look worse than they truly were, as a “charged off” debt is seen as a greater negative than one that has been dismissed. The attorney feels that over 1.3 million individuals could be impacted by this change.
Bankruptcy is supposed to protect consumers and offer them a fresh start – by clinging to these old debts and harming the credit reports of the impacted consumers, the banks were negating the intended effect of bankruptcy.
Bankruptcy is designed to allow consumers to start over and is comprehensive, leaving out only a few debts, including taxes and student loans. By leaving these “zombie” accounts on a consumer report, the banks were trying to force consumers to pay for debts that they were no longer required to. Even though the consumer was afforded protection by bankruptcy law, many felt pressured to pay debts they no longer owed, just to get them removed from a credit report and to boost a credit score.
While the banks did not admit they were in the wrong, the court action compelled them to take action and do something for the consumer. Whether the banks chose to take this step to avoid being forced to do so by the court or to avoid the publicity that stems from their abusive treatment of post-bankruptcy customers is unknown, but the end result is the same.
The removal of old debts from credit reports is a good thing for consumers – regardless of the way it came about. If you have filed for bankruptcy, be sure to check your credit reports regularly to ensure that a zombie debt hasn’t been added back in to your report. If you are planning on filing for bankruptcy, make sure all of your debts are included (with the exception of those that are excluded by law) and check back regularly after your debts have been discharged to be sure your bank is not harming your ability to get credit or needed services.
If you are currently in a similar situation and you are not sure what to do, you can contact us today and find out how our professional services will be able to help you. We have already helped hundreds of consumers get rid of their debts legally and keeping their credit scores unharmed.