Bankruptcy and Your Credit Report

Yesterday the New York Times reported that Bank of America and JP Morgan Chase have agreed to fix credit reports so debts discharged in bankruptcy are accurately reported as included in bankruptcy. The article states that “this move is a victory for borrowers whose credit reports have been marred as a result of the reported debts, imperiling their job prospects and torpedoing their chances of getting new loans.”  Undoubtedly the agreement to fix credit reports will help countless consumers. However it is important to note that the banks are merely agreeing to comply with the law, although Bank of America has offered to go further and extinguish all debts that have been sold off since May 2007, regardless of their inclusion in bankruptcy.

After a bankruptcy is filed, all debts that have been discharged in bankruptcy can only be reported on your credit report as included in bankruptcy. Debts listed in any other way are inaccurate and violate the Bankruptcy Discharge Order, because by reporting the debt as still owed the creditor is effectively attempting to compel the consumer to pay the debt to remove it from the report. This violation is the basis for the lawsuit cited in the New York Times article, in which the banks are accused of engineering this “subtle but ruthless debt collection tactic, effectively holding borrowers’ credit reports hostage, refusing to fix the mistakes unless people pay money for debts that they do not actually owe.”

If the discharged debt is listed as past due, delinquent, or charged off, this is inaccurate. And the inaccuracy will hurt your credit. After you receive your bankruptcy discharge, you are in a position to start over, but to rebuild your credit and financial stability, you need to monitor your credit diligently. The bankruptcy filing will be on your credit reports, and can be reported for up to ten years for a Chapter 7 case. But all of the delinquent debts that were being reported by original creditors and collection agencies must stop. If all creditors accurately report the debts as discharged in bankruptcy, your credit will begin to improve. One of the findings of the recent Federal Reserve Bank of New York Study, discussed in our last blog post, was that one quarter after bankruptcy, the filers’ received a boost in their credit score.

So it is important to ensure everything is being accurately reported, and dispute debts that aren’t. Every consumer is entitled to one free credit report from each of the three credit reporting bureaus once a year. You can obtain these reports from www.annualcreditreport.com, or these can be ordered over the phone by calling 1-877-322-8228. A few months after the bankruptcy case closes, the filer should order one of these free reports to make sure no debts are still being reported as owed, because inaccurately reported debts will drag the score down. If there is an inaccuracy, the consumer can dispute it by writing the credit bureau and including evidence that the debt was discharged, including a copy of the discharge order.

There are other possible ways to rebuild credit after a bankruptcy, and every filer should discuss their specific circumstances with their lawyer when they file. At MDRF, we address each client’s specific needs and strive to provide the information and tools necessary so they can continue to better their financial stability. We are also always available to our clients, even after their cases have closed to give help when needed, especially to protect against creditors who fail to honor the Discharge Order. Please feel free to contact us to find out more about how we help low income Massachusetts residents file bankruptcy with no fees.

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