Banks Pledge to Update Credit Reports to Reflect Discharged Debt
PUBLISHED BY: LFN Primary
Brandon, FL (Law Firm Newswire) September 29, 2015 – Bank of America and JPMorgan Chase agree to change how they report debts discharged in bankruptcy.
Many borrowers know the stress of being unable to pay one’s bills — the constant phone calls from collectors, the fear and uncertainty about the future. Those who turn to bankruptcy do so in the hopes that it will enable them to turn their lives around, and it does provide substantial relief. But their credit reports do not always tell the whole story.
Bankruptcy attorney O. Reginald Osenton says inaccurately reported discharged debts on credit reports can stand in the way of debtors getting a fresh start.
“When a debt is discharged in bankruptcy, this precludes the creditor from attempting to collect on it,” Osenton said. “However, if the discharge is not accurately reflected in the borrower’s credit report, that can make it all but impossible for them to secure new lending or even get a job.”
Federal law requires creditors to update credit reports to indicate that a discharged debt is no longer owed. This means any indication of it being charged off or past due must be removed. But an investigation by the Justice Department’s United States Trustee Program (USTP) centers on allegations that many banks routinely fail to perform these updates, according to an article in The New York Times.
A subsequent lawsuit in federal bankruptcy court alleges that the banks are flouting the law in an attempt to pressure debtors to pay discharged debts. It also alleges the banks seek to obtain more money in exchange for pools of bad debt that they routinely sell to financial firms. It was in these court proceedings, and under continued pressure by the USTP investigation, that JPMorgan Chase and Bank of America agreed to ensure that newly discharged debts were accurately recorded in credit reports by August 2015. Bank of America also promised to do the same for all debts sold to third parties since May 2007.
“Without proper enforcement of the bankruptcy code, bankruptcy becomes meaningless, and the economy becomes clogged with unpayable debts,” Osenton said. “I applaud the Justice Department for holding these banks accountable.”