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Bankruptcy Filing Should Clear Credit Report

When you file a bankruptcy case, and you successfully complete all of the requirements for discharge under Chapter 7 or Chapter 13, your credit report should show a $0.00 balance on all debts that were listed in your case and discharged by the court. All of these debts on your credit report should also have language for each account showing “Discharged in Bankruptcy”. In addition, all reporting on debts listed in the bankruptcy case and discharged should have all reporting activity stopped as of the date of filing the bankruptcy case.

In reality, however, many creditors elect to not follow these procedures in an effort to have a chance that the debt will someday be repaid. When this is done, your credit score (or FICO score) suffers as you could very well have a significant debt to credit ratio problem. In addition, when you try to get credit in the future, some lenders such as auto finance and home mortgage companies will require that outstanding debts on the credit report be paid as a condition for getting the loan.

Because the bankruptcy case is over, this has left many debtors fighting with creditors and credit reporting agencies to have their credit reports updated and all improper information removed. Bankruptcy Courts simply did not understand that doing this was actually an attempt to collect a pre-pretition debt. This is a violation of the discharge the bankruptcy was designed to provide. Sadly, many debtors paid the debt instead of fighting with the credit reporting agencies or creditors about fixing the problem.

Recently, a U.S. District Court authorized a class action suit against credit bureaus for such violations. In the case of White v. Equifax, the U.S. District Court for the Central District of California has Ordered credit bureaus to make appropriate changes to inaccurate credit reports for people that have filed Chapter 7 bankruptcy.

Under the Court's Order, all credit reports with discharged debts must now contain langauge which states “Agreed Bankruptcy Coding.” This “Agreed Bankruptcy Coding” requires a credit bureau “to indicate that the account is discharged in the Consumer’s Chapter 7 bankruptcy (e.g., by use of the terminology “included in bankruptcy”) and shall update the tradeline or Collection Account to reflect a zero-dollar or blank account balance and past due balance as to the Consumer who received the bankruptcy discharge, so as to indicate that no debt is due or owing by the Consumer after the discharge date.”

The learning point here is once you have received your discharge, about 30 to 60 days later, make sure you pull a copy of your credit report and look for the required reporting language. If any discharged debts show an amount due, you have a legal right to have it corrected.

The Castle Law Office is a St. Louis, Missouri based firm that is dedicated to helping citizens on both sides of the Mississippi river get through financial hardships. We are not a credit counseling agency. We are not debt collectors. What we do is help people get through the bankruptcy process in a way that will help them resolve their debts while still maintaining as much of their property as possible. If you or a loved one are considering filing bankruptcy, contact the Castle Law Group in St. Louis for a free legal consultation today.

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