Though it may seem shocking, consumers can still be haunted by debt, even after bankruptcy. Tens of thousands of U.S. consumers who have gone through bankruptcy still have to face debt – sometimes up to ten years after declaring bankruptcy and having their debts discharged.
Debt After Bankruptcy
If bankruptcy court is supposed to render debts void, then why are consumers still facing debt? State and federal officials suspect it has to do with the fact that some of the U.S.’s biggest banks ignore the discharges and continue to keep the debts alive on credit reports, thus forcing the consumer to pay.
Lawyers with the United States Trustee Program are now investigating big banks including: JPMorgan Chase, Bank of America, Citigroup, and Synchrony Financial (formerly known as GE Capital), on suspicions the banks are in violation of federal bankruptcy law due to their practice of seeking discharged debt. At the center of the investigation is how banks report debt to credit reporting agencies. Once bankruptcy has discharged a consumer’s debt, the credit report is supposed to be updated to reflect that. But it looks like banks routinely fail at this process. If the banks have been found to be in violation of bankruptcy law, then the United States Trustee’s office could audit lenders and extract steep penalties.
Ignoring Bankruptcy Discharges
During the bankruptcy process, people’s bank accounts, bills, possessions are scrutinized in order to obtain a final discharge of all debt. But if lenders ignore the discharges, then according to bankruptcy judges, bankruptcy and the whole process of tarnishing one’s debt is worthless.
Sources: New York Times, Debts Canceled by Bankruptcy Still Mar Consumer Credit Scores, November 12, 2014