Post-Bankruptcy Consumer Credit Problems
After you decide to file for personal bankruptcy, will you be free from the debts you owed? While Chapter 7 bankruptcy can wipe away a majority of your debts, it’s important to remember that consumer bankruptcy can’t always eradicate all debts. Indeed, certain debts aren’t dischargeable in bankruptcy, and they can linger on your credit report for years to come. And other debts that should be discharged, it turns out, aren’t being treated that way by certain banks. According to a recent article in the New York Times, “there are zombies: bills that cannot be killed even by declaring personal bankruptcy.”
If you have questions about consumer bankruptcy, it’s very important to speak with an experienced Chicago bankruptcy lawyer. Bankruptcy laws are extremely complicated, and the attorneys at the Emerson Law Firm can answer your questions today.
Banks Ignoring Bankruptcy Court Discharges
Some debts can’t be discharged in bankruptcy, and some are very difficult to discharge. For example, many tax debts and student loan debts cannot easily be discharged when you file for Chapter 7 bankruptcy. However, these aren’t the debts to which the New York Times article refers. Rather, many debtors who have had debts discharged through consumer bankruptcy continue to be haunted by those very same debts, and sometimes for up to a decade later.
How can this happen? Once a federal judge extinguishes your bills in court, aren’t you free from those debt loads? State and federal officials believe that “some of the nation’s biggest banks ignore bankruptcy court discharges, which render the debts void.” To be sure, “paying no heed to the courts, the banks keep debts alive on credit reports, essentially forcing borrowers to make payments on bills that they do not legally owe.”
Can banks actually do this? Commentators emphasize that it’s a sneaky way for banks to try to force borrowers to pay their debts, even after they’ve been discharged. Essentially, experts say, the bank “hold the credit report hostage”—if you don’t pay your debt, it’ll tarnish your credit for years to come. Some of the banks implicated include: JPMorgan Chase, Bank of America Corp., Citigroup, and Synchrony Financial.
Banks Undermining the Primary Tenets of Consumer Bankruptcy
The U.S. Department of Justice, through the United States Trustee Program, has begun investigating this practice, as federal judges have argued that these banks are “threatening the foundations of bankruptcy.” And debt buyers are still willing to purchase debts that have been discharged, hoping that pressure to have a clear credit report will lead consumers—whose debts have been wiped away—to make payments regardless of their bankruptcy proceeding outcome.
Yet Chapter 7 bankruptcy is supposed to be about a fresh financial start. According to several bankruptcy judges, this promise of Chapter 7 bankruptcy will become “worthless if lenders ignore the discharge.”
One of the ways to put a stop to this practice is to deal differently with banks’ methods of reporting debts to credit reporting agencies. As soon as a borrower has a debt discharged through bankruptcy, the creditor is supposed to update the borrower’s credit report to make clear that “the debt is no longer owed, removing any notation of ‘past due’ or ‘charged off.’” To be sure, these supposed errors are not mere clerical mistakes. Indeed, they’re “debt collection tactics,” according to bankruptcy judges’ suspicions.
You have certain rights as a consumer. If you believe you’re being treated unfairly by a creditor or a debt collection agency following your bankruptcy, you should contact an Oak Park bankruptcy lawyer as soon as possible.
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