Debts Canceled by Bankruptcy Still Mar Consumer Credit Scores

Written by Administrator

In the world of consumer debt, there are bills that can't be gotten rid of, even if you declaring bankruptcy.

So many Americans who declared bankruptcy are chased by debts even after bankruptcy and judges have gotten rid of the the bills in court.

The issue, officials think, is that a portion of the America’s big banks pay no attention to bankruptcy discharges that make the debts null and void. They pay no attention to the rulings, and keep the debts on credit reports, while making borrowers make payments that they don't owe anymore.

This powerful trick holds the credit report until borrowers pay up, which gives life to the mounds of debt that is gotten by financial firms.


Lawyers in the United States Trustee Program, are looking into the Bank of America, JPMorgan Chase,  Synchrony Financial, Citigroup, accusing the banks of breaking bankruptcy laws by ignoring the injunction.

Banks disagree, saying they follow with federal laws with collecting and selling debt.

Federal judges have began to raise suspicion that banks are shaking the grounds of bankruptcy.

A Judge in the federal bankruptcy court said that debt buyers are aware that banks “will refuse to correct the credit report to reflect the obligor’s bankruptcy discharge, which means that the debtor will feel significant added pressure to obtain a ‘clean’ report by paying the debt,” 

For debt buyers and banks, people knowledgeable about the investigation stated that it's beneficial on both sides of the arrangement. Banks usually send payments they get from the borrowers to debt buyers, which are usually willing to purchase portfolios of old debts, which include some that might end up being voided in bankruptcy from banks.

Those knowledgeable on the investigation stated that is how banks report debts to credit agencies. After borrowers void their debt in bankruptcy, creditors are to change credit reports to show the debt is not owed any longer, and take away any record of “past due” or “charged off.”

The banks don't do that, says to those in on this investigation, in interviews with over 3 dozen borrowers who had discharged debts from bankruptcy.

These errors are not mechanical mistakes, but debt collecting ideas, bankruptcy judges think. Banks will not fix these issues, say the borrowers, unless purged debts are paid. Many borrowers often end up paying, because they have a lot at stake, the bad credit reports, showing that they still owe costs them a new loan, house, or job. A Denver, couple, for example, gave JPMorgan $2,583.00 on their debt that was cancelled from bankruptcy, being that they required a good credit report to obtain a mortgage.

There are more who pay on debts they no longer owe, but don't report it because they don't know the practice isn't legal, or can't afford to.

A 51-year-old hospital employee who went through a bankruptcy in 2012, claimed that he was almost one of those who paid. He was rejected for an apartment when the agency checked his credit report, that was hurt by a debt on a credit card, says a letter from the agency, and a copy that was reviewed by The Times.

When he called JPMorgan, Mr. Soto said, he was told that the black mark would remain unless he paid. “It was either pay or lose the apartment,” he said. But after his bankruptcy lawyer explained the situation to the rental agency, Mr. Soto ultimately did not pay. (He got the apartment.)

Three banks declined comment, saying that it was pending litigation in bankruptcy court.