When a Chapter 7 Bankruptcy is discharged, all credit accounts included in the bankruptcy should be reported as such along with reporting a zero balance. After a bankruptcy some shady bad debt buyers will try and collect on a debt that was eliminated in bankruptcy.
In recent news Bank of America and JP Morgan Chase agreed to update borrowers’ credit reports to reflect debts have been extinguished through bankruptcy.
According a New York Times article “The change by the banks emerged this week in Federal Bankruptcy Court in White Plains, where the two banks, along with Citigroup and Synchrony Financial, formerly GE Capital Retail Finance, face lawsuits accusing them of deliberately ignoring bankruptcy discharges to fetch more money when they sell off pools of bad debt to financial firms.”
If a debt collector calls you about payment on a debt discharged in bankruptcy, hang up. You don’t owe a dime.
Creditors inaccurately reporting discharged debt
Not only is selling debt included in bankruptcy against federal laws, more importantly it is damaging to debtors’ credit scores. When a debtor files bankruptcy it is often a last resort to overwhelming credit obligations. It is not a decision someone makes lightly.
Bankruptcy gives debtors a fresh start. But if discharged debts are incorrectly reported after being included in bankruptcy your credit scores will suffer additional damage, you could be denied new credit, or be required to pay a discharged, but misreported, debt as a condition for getting a new loan. If the debts wiped out in bankruptcy continue to be reported as past due or charged off, it’s harder to get that fresh start.
Banks could be using the incorrect reporting as a tool to make debtors pay up, even though the debt is no longer owed. The lawsuits accuse the banks of creating an illegal debt collection tactic by refusing to update or fix errors on debtors’ credit reports in an attempt to extort money for debts that are no longer owed due to bankruptcy.
Without admitting any wrongdoing, lawyers for JPMorgan Chase and Bank of America agreed to ensure all debts discharged in Chapter 7 bankruptcy were correctly listed on credit reports. Other big banks like Citigroup and Synchrony Financial also agreed to update consumer credit reports to reflect accurate accounts included in bankruptcy. More than a million Americans who have filed bankruptcy could potentially see improved credit reports and scores.
What debt included in bankruptcy cannot report
Any debt included in bankruptcy that remains on your credit report as follows will damage your credit score and is also inaccurate reporting:
- Accounts showing currently owed or active
- Accounts showing late or delinquent or outstanding
- Accounts showing charged off
- Accounts having a balance due, or
- Accounts converted as a new type of debt (re-aged, or having new account numbers).
It imperative to your credit scores and credit reports that accounts reflect an accurate listing of your post-discharge information.
Several facts about accounts included in bankruptcy
- A Chapter 7 Bankruptcy can remain on credit reports for up to 10 years from the filing date. Accounts included in the bankruptcy will have their status updated to show that they are included in the bankruptcy.
- Accounts included in bankruptcy will be deleted seven years from the original delinquency date of the account – bankruptcy does not change this fact.
- The accounts included in bankruptcy will likely be deleted from credit reports before the bankruptcy public record because in most cases they are delinquent prior to bankruptcy being filed.
- Debt collectors who try to collect on debts included in bankruptcy are in violation of the Fair Debt Collection Practices Act.
- Credit bureaus and your creditors should report each discharged debt as having a zero balance and discharged, “included in bankruptcy.”
What to do about inaccurate reporting
About 2 months after your bankruptcy is discharged, you should pull your credit reports from the 3 major credit bureaus to make sure all debts included in bankruptcy are reporting as discharged. Any debts reporting as past-due or charged-off should be disputed. Dispute errors in reporting to the credit bureaus and demand the accounts be correctly reported as “included in bankruptcy” and a “zero balance.”
In addition, if a creditor wrongfully reports your discharged debts, it may also be in violation of the bankruptcy discharge injunction, which prohibits creditors from trying to collect on discharged debts. If disputing the errors with the credit bureaus does not resolve the issue, talk to your bankruptcy attorney.