Ensuring an Accurate Credit Disclosure After Bankruptcy

Interviewer: Oh, but you’re saying the debt that you can’t discharge in bankruptcy for whatever reason obviously won’t show up as discharged on the credit report?

Andrew Campbell: That’s right. You shouldn’t expect them to be showing up as discharged.

Other debts such as credit card and the medical debts, should be reporting a “zero balance” and the status should be reporting “discharged in chapter 7” or “discharged in chapter 13″.

Sometimes though the status  will say “charged off” or “paid less than full amount” or it says “discharged.”

Charged-off is simply an accounting term used to note when an asset on the balance sheet becomes a liability for tax purposes.

The most common mistake I see is that status of the debt on the credit report still says “charged-off” or there is still a balance still reporting.

Either way, you need to file a written dispute with the credit reporting agency that is misreporting the debt.

Interviewer: One second. So charged-off does not mean the same as discharged?

Andrew Campbell: No. A charge-off is an accounting term whereby a bank or a company takes a debt and, for IRS purposes to limit taxes due, moves it from an asset to a liability.

To get certain tax benefits you have to follow IRS rules and regulations. Once a debt is due but not paid then a creditor needs to wait about six months. Once 180 days has passed, the debt is automatically charged off.

This means that the creditor has officially declared that the debt as not collectible.

No interest can be charged from that point forward because to charge interest a creditor would be implying that the debt is still collectible.

The creditor will typically sell the debt off or have a debt collector attempt to collect it for six months or so.

So a charge-off means the debt is still owed but it might be owed to another party.

It is very damaging for charge-off to appear on a credit report.

In fact, one case specifically states:

“A credit report entry that reflects a past due account is treated differently by prospective creditors in evaluating credit applications than an entry that reflects a debt that has been discharged in bankruptcy. The essential difference is that a discharged debt represents a historical fact that the prospective borrower filed bankruptcy in the past and was relieved from the obligation. Nothing is now due. A past-due debt represents a delinquent but legally enforceable obligation that must be resolved.”

Having a quote like this handy when a creditor’s attorney complains that your client has not suffered any harm or damage is nice. That’s why it’s so important that a credit report accurately represents that discharged debts not reaffirmed should always be listed as a having a zero balance.

Interviewer: All right, so in plain English terms, a charged off debt on your credit still means that you legally owe that debt and they’re just listing the status as a charge off. A discharged debt means that you don’t even owe that debt?

Andrew Campbell: Yes.

When you get a discharge from a bankruptcy court the debts still exist. Debts that have been discharged simply means that the person that received the discharge is not personally liable on that debt.

The debt still exists, if we’re talking about strict rules. A debt still hypothetically exists; it’s just that you’re not liable for it. That’s the difference.

Interviewer: Okay.

Andrew Campbell: That’s why it’s so important to dispute anything not appearing correctly on your credit report.

You will want to be sure to put a copy of your discharge order with the letter, you’re sending.

You don’t want to do this by Internet, and you don’t want to do this by phone because then you have no record.

If you do use the Internet to dispute you are simply playing into the hands of the credit reporting agencies.

You end up agreeing to terms and conditions and these terms and conditions will say things like, “Arbitration: you agreed to a private judge if you find out that we screwed up – we being the credit reporting agency and/or you can’t sue us if we screwed up.”

You don’t want to use the web-based systems to dispute your debt for that reason. Also, if you do it by means of the Internet you are also going to end up being locked into expressing your dispute using credit reporting terms.

So instead of saying, please investigate this dispute because I am liable for this debt as it was discharged in bankruptcy a credit reporting agency code might be “not his / not hers”. That really doesn’t express things properly

You want to write a letter to document the dispute. You will want to send every single document you can to prove your dispute. So in this case, you would put a copy of the discharge order in the letter and a copy of your driver’s license, social security card and utility bill.

Putting these other items in your letter of dispute shows the credit reporting agency that you are who you say you are. You live where you say you live and you have provided proof of that.

Send it certified mail return receipt so you have proof of when it was sent and received.

The letter will state the date of your filing and all the details of your dispute. So it might say,

“I filed chapter 7 on this date. I got a discharge on this date. XYZ company is furnishing information that says I have a balance and that my status is charged off. I dispute this. I do not have a balance. It should report zero balance and the status should be changed to discharged in chapter 7. Please correct this and update my report and report back to me.”

Something like that. There are no magic words. The dispute has to be enough to put them on notice of what the problem is and you need to at least give some kind of evidence of your dispute if you have it.

Interviewer: Okay.

Andrew Campbell: Once you do that, the credit reporting agencies will then do their own little investigation, which is usually about less than forty-five seconds done by somebody in the Philippines or in India. It’s done very quickly.

Basically they go to the creditor and they say, “Is this true?” And then they issue another report.

Interviewer: Why would they go to the creditor? If it is documented by third-party evidence, who cares what the creditor says?

Andrew Campbell: They have to do, though. That is their legal obligation to check with the furnisher of the information.

Interviewer: What if the creditor says, “No, it’s not true. They owe me money?”

Andrew Campbell: Then you don’t fix it and you’re going to want to again try to dispute it again.

You’re going to want to try to dispute it no less than three times. Don’t do this unless you are going to do it the correct way.

You must dispute three times because the mistake of the credit reporting agency has to be more than just simple negligence. It has to be willful.

So if you give them the correct information that demonstrates your version of events and they do not fix it after receiving the dispute three times then you have a stronger case that is more easily proven.

If they won’t fix it and they won’t fix it properly, then you should call an attorney who knows how to sue credit reporting agencies because it’s a very complicated area of law.

Interviewer: Okay.

Andrew Campbell: The whole point is you want to get them to correct it.

Most of the time it will be corrected and the credit reporting agencies might just correct it themselves but typically they’ll go to the furnishers.

So, anyway, you will hopefully get a corrected report and you’ll look through it again and if you see any additional errors you’re going to want to dispute those errors.

Once you get your credit report corrected you could see an improvement of your credit score. Not always and not in every instance, of course.

Eliminating repossessions, charge-offs, or balances not owed you should find that your score generally improves.

Interviewer: Okay. Backing up to ordering your credit reports – should you order them online or should you order them with a letter? What if the credit agency says, “Oh, there’s some discrepancy and we can’t get you your report?”

Andrew Campbell: It’s no problem ordering them online.

I typically order them online without any issue. Sometimes there will be some issue getting it online you might have to make a phone call to demonstrate that it is you requesting the report.

If you try to get the report online you will be asked security questions and if you get those answers incorrect then there will be delays in getting that report.

Everybody is entitled to a free credit report from each credit reporting agency once per year by law.

  • By Telephone – Call 877-322-8228 (toll-free).

You do have to pay if you’ve already ordered the report in the last year. I don’t think it’s that expensive.

Interviewer: You were talking about pursuing creditors or debt collectors that furnish false information right?

Andrew Campbell: Yes, there is an important distinction that everyone should know about. If a debt collector is reporting false information on your credit report then you can sue that collector under the Fair Debt Collection Practices Act if the wrongdoing occurred in the last year.

So if a debt collector is reporting a balance due after discharge then that is something you should immediately pursue. Same goes for a debt collector that is not accurately reporting the status of the debt.

So if there was a charge off issued after the date of filing of bankruptcy that is something that should be removed. That status of the debt must be accurately stated.

If it is a creditor not accurately furnishing information then you cannot sue them directly until you first send disputes to the credit reporting agencies.

Sometimes you can prove a creditor is not furnishing accurate information by sending a credit reporting agency other credit reports showing different information.

I also advise my clients to send a carbon copy of the dispute and other documentation to the creditor as well.

The important thing is to take action to correct the report and continue to check your report at least once a year.