Credit Reports after Discharge: What Should be Reported?

by Bankruptcy Law Network (BLN)

October 5, 2008

Generally speaking, upon Bankruptcy Discharge, credit reports should report a $0.00 balance on all debts that were discharged.  They should also state “Discharged in Bankruptcy” or other similar language for each account discharged.  Finally, there should be no additional reporting after the bankruptcy filing date.

Unfortunately, this is not always the case since reporting a balance by a creditor increases the chances that the discharged debt will someday be paid. This is because a balance brings the credit score down due to the debt to credit ratio.  Even worse, home and auto lenders sometimes mandate that certain debts on the credit report be paid as a condition for financing.

For many years, debtors struggled with creditors and the credit bureaus to have their credit reports properly updated after discharge.  Bankruptcy Courts frequently dismissed many actions to clean the reports since most bankruptcy judges simply did not understand that false credit reporting was an act to collect on the discharged debt.  These judges usually had perfect credit and never experienced the coercion that false credit reporting has, or refused to believe that such reporting could cause discharged debts to be paid.

Nevertheless, a recent case in California has now recognized the dilemma and has instituted class relief for thousands of debtors.  In the case of White_v_Equifax, Judge David O. Carter of the U.S. District Court for the Central District of California, has given the bureaus until Oct. 1 to update the files of millions of consumers who have filed for Chapter 7 bankruptcy.

Credit reports with information on discharged debts must now contain “Agreed Bankruptcy Coding.”  Please see clause 2.2 of pages 6 through 8 in the White_v_Equifax  case.  Essentially, this “Agreed Bankruptcy Coding” requires the bureau

“to indicate that the account is discharged in the onsumer’s Chapter 7 bankruptcy (e.g., by use of the terminology “included in bankruptcy”) and shall update the tradeline or Collection Account to reflect a zero-dollar or blank account balance and past due balance as to the Consumer who received the bankruptcy discharge, so as to indicate that no debt is due or owing by the Consumer after the discharge date.”

So always be sure to check your credit 30 to 60 days after discharge.  If any accounts that were discharged are showing a balance, you have legal recourse to have these accounts corrected.

Written by Michael G. Doan

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Last modified: February 21, 2012