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23

Feb 2010

Your credit report after bankruptcy

Posted by / in After Bankruptcy / 16 comments

<h2>Your credit report after bankruptcy</h2>

Getting back to good credit is one of the three big reasons to file Chapter 7 bankruptcy.   (The other two are so your creditors can’t call you and so they can’t garnish you.)  Unfortunately,  probably half the people who go through bankruptcy don’t get their credit report fixed.

How should your credit report look?  In 1990, the Federal Trade Commission issued a staff commentary explaining what the credit bureaus had to do to meet the requirement that people’s credit reports be complete and accurate.  (UPDATE:  When the Consumer Finance Protection Bureau took over this area from the FTC, the FTC deleted their commentary.)

The Federal Trade Commission staff  said three things.

First, that a debt discharged in bankruptcy should show a zero balance.  ( “A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy itself), as long as it reports a zero balance due to reflect the fact that the consumer is no longer liable for the discharged debt.” )

Second, that a debt discharged in bankruptcy should show a discharged in bankruptcy status.   (“Similarly, a consumer reporting agency may include delinquencies on debts discharged in bankruptcy in consumer reports, but must accurately note the status of the debt (e.g., discharged …”)

Third, that the credit bureaus need to stay on top the the creditors to make sure they send in the required updates–specifically to update past due accounts that are then included in bankruptcy.  (“A consumer reporting agency must employ reasonable procedures to keep its file current on past due accounts (e.g., by requiring its creditors to notify the credit bureau when a previously past due account has been paid or discharged in bankruptcy…”)

In spite of these three requirements, spelled out by the Federal Trade Commission, probably half the people who are discharged in a chapter 7 bankruptcy still have errors on their credit report.  It’s better than it was ten years ago, when probably seven out of ten people came out of bankruptcy with these kinds of errors.  But it still stinks.

The problem now is largely practices that were legalized by a class action lawsuit in California that was supposed to fix the problem.  This is the Terri White class action and it didn’t help much.  To settle the law suit, the credit bureaus agreed to stop things that had already been stopped.  And they were allowed to ignore smaller problems that are getting more and more common, now that they have an official ok.

The big problem, that had mostly stopped, was putting after bankruptcy “charge offs”–meaning you owe the money but aren’t paying–instead of “discharge,” meaning you don’t owe it any more.

Ten years ago, several major credit card issuers always reported charge off instead of discharge.  First USA, Bank One and Fleet were the worst, and the credit bureaus did nothing about it.

A handful of law firms around the country started suing them.   James L Manchee in Texas,  http://www.mancheelawfirm.com/, Kathy Cruz in Arkansas, http://cruzlaw.com/ and Charles Juntikka, in New York City http://www.cjalaw.com/ .  Jason Krumbein, http://www.krumbeinlaw.com/, and myself here in Virginia.

All three of those brands were taken over in big mergers.  First USA and Bank One became part of Chase.  Fleet was gobbled up by Bank of America.  The new owners of those credit card lines didn’t want the hassle.  By the time of judge in the Terri White case told the credit bureaus they needed to fix that problem, it had pretty much been fixed.

New problems were created.    The credit bureaus are not required to update accounts that have been sold.  HSBC, when they get notice of a bankruptcy, always “sells” their accounts.   (Who is buying bankruptcy accounts?)   Then they say–both HSBC and the credit bureaus–that they don’t have to show the account was discharged in the bankruptcy.  It just stays as a zombie account on your credit report.  You’ll notice this is the opposite of what the FTC said (although never enforced)–the the credit bureaus were supposed be sure the creditors told them when a past due account had been discharged in the bankruptcy.

The same rule applied to “minor” derogatories.   If the credit card is only 90 days past due, they can leave it as past due and never show the bankruptcy.

Even worse.  They can leave the bad credit sitting on your credit report if your account is closed.  More and more we are seeing bank and credit card companies just “close” your account when they get notice of the bankruptcy–and just park it on your credit, ignoring the fact that it was discharged by the bankruptcy.

What’s the lesson of all this.  When your bankruptcy is over, your credit report will probably not be right.  Unless you or your lawyers, check it, disputes it, and sues to protect your rights, it will look like some of your debts were missed by the bankruptcy.

That will drag down your credit score; and cause problems with future lenders, possible employers, and security clearance agents, who will want to know why this or that debt was not taken care of.

The bankruptcy is not really over until the credit report is right.

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Robert Weed has helped twelve thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.

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16 comments
  • Laura

    April 26, 2010, am30 2:41 AM
    01

    Will a home loan that was included in a chapter 7 bankrupt, a loan that was not reaffirmed, be protected, so to speak, from being reporetd to the credit bureaus as a foreclosure if I ever decide to walk away from the house in the future?

    • RobertWeed

      April 26, 2010, am30 10:20 AM
      02

      Those are great comments, Laura, because they cover a whole lot.

      After bankruptcy, the credit reports should show bankruptcy status on the house–“included in bankruptcy” and balance $0–whether you are paying or not paying, still living there or moved out. That’s because you don’t have to pay any more. (Although obviously if you don’t pay, they will take over the house.)

      If you keep the house for now and move out later, that should stay the same. There should NOT be any foreclosure or late’s that show up after the bankruptcy. (I emphasize should NOT–I am seeing mortgage companies use the credit reporting METRO 2 code Q often. Code Q says the bankruptcy report was a mistake and takes it back out. They are not allowed to do that, and I’m in a big fight in court trying to make them pay when they do.)

      However, even if the credit report is right, there will still BE a foreclosure. It should not show on the credit report, but it will be on the public record.

      What does that mean?

      Suppose you in the house for three or four years after the bankruptcy and build up your credit. Then you move out. Moving out will not change your credit score–you will still be able to get a car loan at a good interest rate. But it will be three years before you can buy a house again.

      Under FHA regulations, which came out in March, you can be eligible for an FHA insured loan two years after a bankruptcy, but if you give up the house, the house has to be out of your name for THREE years. That’s whenever you give up the house. Before the bankruptcy, during or after–that’s when the three years start.

  • Laura

    April 26, 2010, am30 2:45 AM
    03

    Is it possible for one credit bureau to be reporting my home loan, which was discharged under a chapter 7 bankruptcy, as a zero balance while the others still reporting a balance?

  • Laura

    April 26, 2010, am30 2:54 AM
    04

    If a home loan is discharged under a chapter 7 bankruptcy, can the mortgage company still report to the credit bureaus on a monthly basis that the loan is current? Although the loan was not reaffirmed, I am still living in the house, making monthly payments and never being late? I would think that they are violating the injunction of the discharge if they report anything, even if it is positive, to the credit bureaus?

  • Laura

    April 29, 2010, pm30 1:00 PM
    05

    Thank you so much for your answers. I have recently become aware that the mortgage company is still sending monthly reports to the credit bureaus, indicating that I have made the house payment for that month. I looked at my Experian report, and it does indicate that the home loan was discharged through bankruptcy Chapter 7/Never late. It shows a $0 balance. But it also indicates that I am continuing to make the payment for that month. Is the mortgage company doing anthing wrong by continuing to mention on my credit report that I am paid as of that particular month. I called the mortgage company, and they did say that they are sending monthly reports to the credit bureaus.
    Would this constitute violating the injunction of the discharge?

  • Robert Weed

    Robert Weed

    April 29, 2010, pm30 8:02 PM
    06

    I think a better question is, does it hurt you to have them report you as current? I think the answer to that is, no.

  • Laura

    April 30, 2010, am30 3:55 AM
    07

    Robert, thank you again for your sage answer. I will not push them to stop sending a monthly account of my payment for each month. Since I am into details, I am still curious
    if they are violating the injunction of the discharge. I am looking forward to your answer. Your knowledge of the law is amazing.

  • Robert Weed

    April 30, 2010, am30 8:55 AM
    08

    Wise judges know when they decide a case, they answer only the questions they absolutely have to. I’m going to follow that rule here. I don’t sue people for doing things that don’t hurt my clients, so I’ve never really analysed whether a good thing can also be a violation.

  • Laura

    April 30, 2010, pm30 2:02 PM
    09

    Robert, your answer, as all of your answers, truly helped me. Thank you for sharing your wisdom.

  • Why a Chapter 7 is best for most people

    November 8, 2010, pm30 6:40 PM
    10

    […] There are several benefits of filing a Chapter 7.  The big one is that most, or all, of your debt will be wiped completely clean and you get to start fresh.   The other major benefit is that it is a relatively quick process—usually less than a year—and after you have your court date, you’re done.  This is a big deal, because that means you’re free to get back to rebuilding your credit on your terms.  This is also unlike a Chapter 13, where the court gets involved in a mandatory, structured payment plan you must complete in exchange for having your debt discharged.  To find out more about dischargeable debt, visit the US Federal Court website at:  http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/DischargeInBankruptcy.aspx.   For more information about your credit report after bankruptcy, see:  http://robertweed.com/blog/after-bankruptcy/your-credit-report-after-bankruptcy/. […]

  • Janeen Hedquist

    March 2, 2013, am31 10:46 AM
    11

    Hi Robert,

    So, are you providing a service to review credit reports and get them corrected for a fee? I would pay someone to do all of the contacting of the credit bureaus and arguing with them about what is wrong on my credit report. If not, can you recomment someone?

    • Robert Weed

      March 2, 2013, am31 10:59 AM
      12

      Janeen:

      Sorry I can’t help with that. I only do my own bankruptcy clients.

      You need to contact that credit bureaus yourself–there aren’t honest people in that business, sad to say, that I know of. Then if that doesn’t fix it, you can find a lawyer at http://naca.net/ to sue them.

  • Daniel Horne

    March 19, 2013, pm31 5:34 PM
    13

    First, thank you for your service! You are kind to take the time to perform this knowledge base update.

    I just discovered that Sears is pinging my credit report in perpetuity as delinquent for a BK that was filed in 5/10 and discharged 10/10. This is interfering with my purchase of a home in 2013. They have filed thirty 90+ delinquency pings since the BK. The account says zero balance, and it also says bankruptcy discharge on the report. I will write the credit bureaus and Sears. My question is that, this is paramount to filing a fraudulent report (slander of a sort) in many circles of law. However, what I am familiar with isn’t BK law. Is there a law I can reference that will help put pressure to correct this mis-reporting of the facts so that it will stop dragging down my credit score. They do this every month, the most recent ping being Jan 2013. Something akin to a “Truth in Credit Reporting Act.” Thank you!

  • Alan

    December 2, 2013, pm31 9:04 PM
    15

    My wife and I bankrupted 11/2009. Our first mortgage shows discharged and a $0 balance, but our second mortgage is still reporting and shows late payments. Why would the first show discharged and the second not? Thank you.

    • Robert Weed

      Robert Weed

      December 2, 2013, pm31 10:41 PM
      16

      Alan:

      Because they are stupid, or at least not very careful, that’s why. You need to dispute that with the credit bureau and sue them if it doesn’t get fixed. That’s been keeping you form getting back to good credit for FOUR YEARS!

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