04 Dec Reporting a Balance on a Credit Report after Bankruptcy Discharge Part II
Generally, reporting a balance influences the debt to credit ratio, which typically amounts to 1/3 of what your credit score is based upon. While many creditors try to argue that they are simply reporting truthful information of what they are owed and what remains on their books, they entirely miss the boat.
A credit report has nothing to do with the creditors’ financial books or what they consider due and owing to them. Rather, a credit report concerns the risks of the borrower in terms of outstanding debts the debtor remains personally liable for. It concerns what debts are outstanding, at a snap shot in time, that are enforceable against the debtor personally.
If a creditor reports a balance due on a credit report after bankruptcy, it’s basically a broadcast to others pulling the report that the debtor still remains personally liable on the debt. This is absolutely false since the discharge injunction of 11 USC 524 states that no creditor can enforce a pre-petition debt personally against the debtor.
Fortunately, the Judges in the San Diego Bankruptcy Courts and across the nation are beginning to understand how these creditors operate. On November 27, 2007, a Bankruptcy Judge in San Diego issued a ruling against Honda who tried to dismiss a lawsuit against them for credit reporting in an attempt to collect a debt.
The Judge denied the motion to dismiss stating, “In asking for dismissal, defendant overstates the law involving the interplay between credit reporting and violation of the discharge injunction. In Irby v. Fashion Bug (In re Irby), 337 B.R. 292, 295 (Bankr. N.D. Ohio 2005), the court acknowledged that there are certain situations in which reporting a debt can be considered an act suffcient to violate the discharge injunction, “if the act of reporting a debt was undertaken for the specific purpose of coercing the debtor into paying the debt, a violation of the discharge inunction could be established.” Id. If plaintiff can prove that Honda inaccurately reported or failed to update the statute of the debt for the purpose of coercing payment, notwithstanding the plaintiff’s discharge, which would essentially amount to lying in passive wait, then this may be a violation of the discharge injunction. Honda’s motive in making a credit notation is material. In re Singley, 233 B.R. 170, 174 (Bankr. S.D. Ga. 1999)(automatic stay violation case in which court denied summary judgment finding that “even if it is true that movant’s report to the credit bureaus contains truthful information that is a matter of public record, such a report, if made with the intent to harass or coerce a debtor into paying a pre-petition debt could violate the automatic stays). Rule 7008 is simple notice pleading. The complaint puts defendant on notice of a cognizable claim for contempt due to violation of the discharge injunction by an action or inaction intended to collect a discharged debt. However, the complaint seeks injunctive relief and there already is a statutory injunction in place under section 524. Nonetheless, taking all the allegations in the complaint as true, the defendant’s motion to dismiss is DENIED.
This decision comes a week after another Judge in San Diego issued a similar decision denying a motion to dismiss in a different matter. While these cases still remain pending, the creditors are now going to need to show why their reporting was not an act to collect a debt. Considering there are no laws, regulations, or other trade, credit, and industry standards which allow such conduct, its going to be real amazing to see what excuse they can come up with for going out of their way each month to report a balance due.
Of course, there is no excuse, and in time, and with a little litigation, Honda will soon account to the Court over how much money it has collected over the past 5 years. Hmmm, no legitimate legal reason to upload false balances, but for some reason Honda has collected tons of money on discharged debt? You make the call.
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