One of the most common reasons people file bankruptcy is to get a "fresh start." But for many folks, that fresh start is hard to come by because of credit report errors. Creditors often fail to report an updated status for discharged accounts or continue to report their pre-discharge status and balance.
Such creditor conduct has a significant effect on consumers. Obviously, bankruptcy itself has a calamitous effect on a credit score initially. However, the credit score usually begins to increase each day after the discharge. Creditors’ failure to properly report the debt as discharged can seriously hamper any potential credit score improvement. This happens so much that a one bankruptcy court made the observation that the “sheer number of such cases may suggest that some creditors are systematically taking such action in an effort to diminish the value of a discharge in bankruptcy.”
How to Protect Yourself and Your Family
Consumers should check their credit reports 30 to 60 days after discharge to verify whether creditors are properly reporting information about discharged debts. All debts that are discharged in bankruptcy should be listed with a balance of zero and there should be a note that the debt was included in bankruptcy. If the credit reports show a balance owed on discharged debts, it is critical that the reporting be disputed in writing.
It can also behoove consumers to encourage their family members to keep an eye on their credit reports. If you have similar names, like most families do, there is a likelihood that there could be cross-reporting of bankruptcy information. So, the whole family should check their reports and review for errors.
What If My Dispute Doesn’t Fix the Problem?
There are laws that protect consumer debtors from these types of problems. The bankruptcy code itself can provide some protection from improper credit reporting. The Fair Credit Reporting Act (FCRA) is a federal law that provides great protection. If the report isn’t corrected 30 days after the dispute is received, it may be necessary to file a lawsuit to make sure your consumer rights are protected and your credit report is fixed.
In some rare (but not rare enough) cases, two consumers credit files can be mixed. Obviously, this can be devastating if someone is saddled with another person’s delinquent reporting. In one mixed file case in Oregon in 2013, a woman tried 8 times to get the credit bureau to fix her report. It took a federal lawsuit and two years of litigation to get satisfaction for the consumer plaintiff. There is one similar federal lawsuit ongoing in a federal court in Sacramento where the son's bankruptcy caused serious problems on his father's credit report.
One of the most common lessons consumers learn through bankruptcy is that it is incredibly important to be proactive with your personal finances. Checking credit reports after discharge is no exception. It is also important to make sure that public records indicate any modified or removed liens that occurred in bankruptcy. While it is certainly advisable to seek experienced help, the consumer debtor has to take the first proactive step and check that credit report.