Sunday, December 7, 2014

Bankruptcy - not perfect but still necessary - steps to try to make it better

Image courtesy of phanlop88
Debt reporting after Bankruptcy can still be a problem. Reports are showing many of the big banks are failing to update credit reporting. As a result, bad debt is being reported after it has been discharged in bankruptcy. It may be because there is no profit in it for a bank to sink resources into monitoring discharged debt. Or it could be as disconcerting as the banks want to try and make debtors suffer further for dumping the debt. Many people think it is the latter but there are steps you can take to try to minimize the impact before returning to court.

 “Judge Robert D. Drain of the federal bankruptcy court in White Plains said in one opinion that debt buyers know that a bank “will refuse to correct the credit report to reflect the obligor’s bankruptcy discharge, which means that the debtor will feel significant added pressure to obtain a ‘clean’ report by paying the debt,” according to court documents.” Debts Canceled by Bankruptcy Still Mar Consumer Credit Scores  (this article discusses the problem further).

 This practice has caught the attention of Federal Authorities. “Now lawyers with the United States Trustee Program, an arm of the Justice Department, are investigating JPMorgan Chase, Bank of America, Citigroup and Synchrony Financial, formerly known as GE Capital Retail Finance, suspecting the banks of violating federal bankruptcy law by ignoring the discharge injunction, say people briefed on the investigations.” Reports the NYT’s article cited above and further reported in  - Feds Investigating Banks’ and Debt Buyers’ Treatment of Bankruptcy Account

As the articles indicate, fighting this reporting in court can be tough and time consuming. I think there are a couple things people can do to lessen the blow of this reporting while the Federal Government works to resolve this issue. First, debtors need to hold their bankruptcy discharge paperwork like they would their birth certificate or a divorce decree. Next they can check their credit reports about a year after their bankruptcy to see what is still being reported. If some of the debts are incorrectly reported, challenge them with the agency. If that doesn’t work, add a comment to the report for the incorrectly reported debt including discharge date and docket number.

Finally, be ready to answer creditors' questions about incorrect debt reporting. For larger loans, like a mortgage, many creditors will ask the borrower about reported information. Have a copy of the discharge ready and answer the questions. Don’t let it throw you off. An explanation coupled with a positive current credit history may go a long way. A creditor may or may not accept the explanation but it is worth a shot. These are steps you might try before you go back into court again.

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