Feeling the Heat after Bankruptcy Discharge

Most individuals who file for bankruptcy, particularly a Chapter 7 or Chapter 13 action, do so to get a fresh start. When debts are discharged via the bankruptcy, creditors’ rights to collect those debts are severely limited, if not rendered void. However, according to findings reported in the New York Times, several large banks may not have gotten the message.

Many state and federal officials believe that the banks are simply ignoring the discharge of bankrupt debt. Under federal law, after a debt is discharged in bankruptcy, creditors – to include banks – are obligated to report to the credit bureaus that the debt is no longer due and has been discharged in bankruptcy.  Thus, any “past due” or other negative remarks about the debt must be removed.

However, it appears that many of the largest banks are instead selling these discharged debts to debt buyers.  Not only may some consumers end up paying debt buyers when they have no legal liability to do so, but, more importantly, these incorrect credit reports may harm borrowers, causing them to lose their “fresh start”– a chance at obtaining new loan, a new house or even a job offer. 

Attorneys at the United States Trustee’s Office (part of the U.S. Department of Justice), are investigating JPMorgan-Chase, Bank of America, Citigroup and Synchrony Financial as they suspect these institutions have possibly violated federal law — by openly ignoring the discharge order issued by bankruptcy courts.  Judge Robert D. Drain of the federal bankruptcy court in White Plains, New York even suggested that he “might refer this, if the facts come out as counsel’s alleging, to the U.S. Attorney General,” for criminal prosecution.  Debtors who have gone through bankruptcy should, in an abundance of caution, discuss with their bankruptcy counsel about checking their credit reports after discharges are ordered to verify that their credit reports have been accurately updated.

In Albuquerque, Giddens & Gatton Law, P.C. has bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases and can specifically provide advice as to disposition of property in Chapter 7, Chapter 11 and Chapter 13 cases. The New Mexico firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, P.C. at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.