27 Nov Reporting Balance on a Credit Report after Bankruptcy Discharge Unlawful
Unfortunately, many people receive their credit reports after filing bankruptcy and obtaining a discharge, only to find that creditors continue to report a balance due, payments are late, or other false information. Such reporting has no legal basis pursuant to state law, federal law, Federal Trade Commission commentary, credit reporting industry standards, debt collector trade organization standards, or other laws.Indeed, the American Collectors Association (ACA) recently released a statement advising: “The FCRA allows an account discharged in bankruptcy to be listed on a consumer report for up to seven years—but it must be reported as discharged in bankruptcy and reflect a zero balance.”
Deliberately reporting a debt discharged in bankruptcy as a valid obligation is indefensible. According to the CDIA, which adopts the METRO2 reporting format, the only information that should be reported upon discharge is a $0.00 balance and terminology “discharged in bankruptcy.”
If a foreclosure takes place after filing bankruptcy, there are no laws which allow reporting it! If a repossession takes place after filing bankruptcy, same thing! The CDIA guidelines instruct that the bankruptcy account should “freeze” as of the petition filing date and upon discharge, the only new information should be a “bankruptcy notation” with a $0.00 balance. The only exception that may apply would be a non-dischargeable debt, dismissed case, or reaffirmation agreement.
So why do creditors continue to report if there is no lawful basis? Its simple: Credit reporting is a powerful debt collection tool. Indeed, it is usually much more powerful than a simple dunning letter attempting to collect a debt that has been discharged. As the famous 1992 Ohio Bankruptcy case of In re Sommersdoft, 139 BR 701 held, inaccurate notations of a debt on a credit report is “just the type of creditor shenanigans intended to be prohibited by the automatic stay.”
In simple terms, false credit reporting generates revenue to creditors. People simply pay creditors to remove this false information. Many people are forced to pay the debt in order to improve their FICO scores to obtain financing or a more favorable interest rate. Others are forced to pay the reported balance out of Real Estate Lender Instructions to close escrow on the purchase, sale, or refinance of a new home. During the last real estate boom, it remains an unknown how many millions of dollars in discharged debt were paid just to close escrow.
Watch for Part Two
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