Federal litigation against major banks may give a victory to consumers nationwide, including in Arkansas. Many persons who received a discharge in bankruptcy found in recent years that the banks were continuing to report bills, such as credit card balances, as still due and owing. Federal law requires banks to erase, without negative comment, accounts discharged in bankruptcy from the debtor's credit bureau records.
A Chapter 7 bankruptcy, for example, is a very straight forward procedure in which the credit card debt and other unsecured debt listed in the bankruptcy is discharged in the final bankruptcy order. This means that it is no longer owed. The banks have been failing to notify the credit bureaus of the debts being discharged and no longer owed.
Bank of America and JP Morgan Chase have finally agreed in the federal lawsuit to correct the credit records of debtors whose debts were discharged but are still being reported. This may ultimately affect over one million consumers. This will eliminate problems that some people have reported with respect to losing new jobs or getting new credit.
The Justice Department is reportedly investigating whether the practice is an intentional flouting of bankruptcy law. By not telling buyers about the discharged debts, the banks will make more money when they sell the old files. In the settlement of the private federal lawsuit, the Bank of America has gone farther and agreed to remove all marks on consumer credit reports since 2007 with respect to those accounts sold to third parties. It remains to be seen whether other creditors will make such a sweeping change.
The credit records of many residents of Arkansas should be improved as a result of the settlement. It may be necessary to monitor one's credit record for the next several months to assure that the changes are made. Anyone with a debt listed on his or her credit record that has already been discharged in bankruptcy can file a dispute of the entry with the credit bureaus.
Source: The New York Times, "Bank of America and JPMorgan Chase Agree to Erase Debts From Credit Reports After Bankruptcies", Jessica Silver-Greenberg, May 7, 2015