Legislation Targets Bankruptcy “Zombies” on Your Credit Report
Most Chicagoans who file for consumer bankruptcy assume that, once their debts have been discharged, they won’t have to worry about seeing those debts on their credit reports, or, worse yet, they won’t have to worry about being contacted by debt collectors about lingering balances that have been discharged in bankruptcy.
However, according to a recent article in The Fiscal Times, that is exactly what is happening to many consumers. There is currently no strict law “saying that, when a consumer satisfies a debt, the bank actually has to led credit reporting agencies know about it.” Because it is not a hard and fast rule, “debts that have been discharged in bankruptcy can longer on credit reports for as many as ten years, and some of these completed debts have even been resold to debt collectors.”
In response, a Democrat on the Senate Banking Committee has submitted legislation that would require banks to contact credit-reporting agencies when debts are satisfied.
Undermining the “Fresh Start” Promised by Chapter 7 Bankruptcy
It is a serious problem that some Chapter 7 bankruptcies don’t result in consumers actually getting a fresh start. As the article argues, this issues actually “undermines the entire bankruptcy process, the goal of which is to wipe out debts and give people a fresh start.” And even if old, satisfied debts don’t lead to consumers getting contacted by debt collectors or debt buyers, those items on a credit report can seriously impact an Oak Park resident’s ability to “rebuild their financial record” after bankruptcy, given that such marks on a credit report affect “interest rates for mortgages or consumer loans,” and can “make it difficult to get a job.”
With these satisfied debts lingering on consumers’ financial histories, a number of commentators have used the description of “zombie debt.” In the most colloquial sense, it is debt that consumers thought was eradicated, but now it is coming back from the dead. According to Ed Boltz, the president of the National Association of Consumer Bankruptcy Attorneys (NACBA), “more than one million Americans have zombie debt sitting on their credit reports.”
Details of the Consumer Reporting Fairness Act
Sherrod Brown’s bill, entitled the Consumer Reporting Fairness Act, would require creditors “to represent a zero balance on any discharged debt to the credit reporting agencies.” If creditors don’t abide by the law, consumers would be able to file a lawsuit. As Senator Brown explained, “this bill would ensure that debts prior to bankruptcy aren’t in effect double counted.”
But why does zombie debt persist? Commentators have different ideas about the root of the problem, including:
· Negligence on the part of creditors;
· Creditors’ “disinclination to pay the cost to have staffers properly report to credit bureaus”; and/or
· Failure to report is actually lucrative for creditors.
Big banks such as Bank of America, Citigroup, and JPMorgan Chase have already been the subject of lawsuits for zombie debt. “Debtors accused the banks of forcing them to pay debts they did not owe as a condition for cleaning up their credit report.” And while the Justice Department has indicated that it is investigating these actions, “the Brown bill would give far more clarity to the law.”
Do you have concerns about debts that you have discharged in bankruptcy? Are you getting calls from debt collectors, or have you noticed those debts on a recent credit report? You should discuss your case with an experienced Oak Park bankruptcy lawyer today.
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