Zombie Debt

For years many large banking institutions engaged in a pattern of conduct where they refused to update credit reports after a debtor had filed bankruptcy to show that the debt was no longer owed.  This resulted in problems for consumers who filed bankruptcy but were still bedeviled by erroneous information on their credit which indicated that they still owed debt they had discharged in bankruptcy and worse yet the lenders often ignored the bankruptcy discharges and included those accounts in pools of bad debt that were sold to collector debt buying firms.   Lawsuits filed against Bank of America, JPMorgan Chase, Citigroup and Sycnchrony Financial (which used to be GE Capital) to address these issues have resulted in agreements by Bank of America and JPMorgan Chase to update credit reports to show that the debts have been discharged.  Federal law requires that once a debt has been discharged in bankruptcy banks have a legal obligation to update the consumers credit report to show the debt is no longer owed and also must remove adverse annotations like “charged off” or “past due”…both which impacts the FICO score.  Synchrony Financial had agreed to do the same late in 2014.  Citigroup had not agreed to alter their policy although there is some indication that they are on the verge of doing so or may have done so very recently.  A change in this policy would help hundreds of thousands of people, some of who have simply paid the debt in order to get rid of the adverse reports even though they had discharged it in their bankruptcy case as past due and charged off accounts can impact employment and other issues.  In my practice I have not seen these issues crop up.  I’ve had former clients complain about errors on their credit report.  In my practice we don’t “straighten out” credit reports.  However, my sense of it has always been that going to the lender directly for a fix is less likely to be successful if they are engaging in unscrupulous practices.  The better way is to contact the credit bureaus and file a complaint.  Under the Federal Fair Credit Reporting Act the bureaus have a duty to investigate and remove any adverse report if it is unfounded.  My information has it that once they contact the lender reporting the inaccurate information that the lender does not often respond.  If they don’t respond it gets removed.

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