Banks agree to begin canceling so-called “Zombie debts” after hearing in bankruptcy court

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I get credit after filing personal bankruptcy?”


Two large banks in the United States are taking steps to delete negative credit marks from credit reports of consumers whose debts with the banks or their affiliates have been discharged in bankruptcy.

Zombie Plate Charlotte Bankruptcy Lawyer Mecklenburg Chapter 7 AttorneyThe banks—Bank of America Corp. and J.P. Morgan Chase & Co.—were sued by a number of borrowers in United States Bankruptcy Court in White Plains, New York over notices that the banks sent to credit reporting agencies that alleged the borrowers’ accounts were “past due” or “charged off,” according to the Wall Street Journal. “Past due” or “charged off” notices negatively affect a consumer’s credit score.

In their lawsuit, the borrower-plaintiffs alleged that their low credit scores hampered their ability to land employment, find suitable housing and obtain credit at a reasonable rate of interest. In one case detailed by the Journal, a New York man’s application for low-income housing was denied because the presence of so-called “Zombie debts” on his credit report.

Credit accounts that have been discharged through bankruptcy but which—due to a creditor’s failure to cancel them—still appear on a consumer’s credit report and negatively affect a consumer’s credit score, are called “Zombie debts.” In their lawsuit, borrowers in the cases in Bankruptcy Court in White Plains argued that banks were required under the federal Fair Credit Reporting Act to “promptly notify credit reporting agencies of any corrections” to their credit scores.

Adam R. Shaw, a lawyer who represents the some 1.3 million affected individuals, told the Journal that “charged off” notices look worse than notices that show a debt was discharged. Lawyer George Carpinello—who also represents the individuals—told the Journal that “these debts are supposed to be deleted and cleaned, but the banks are continuing to announce to the world that they’re due and owing.”

Aside from negatively affecting consumers’ credit scores, the so-called “Zombie debts” also create an incentive for borrowers to pay off the debts in order to improve their credit scores, even though—because of their bankruptcy discharge—they have no legal obligation to pay off the debts.

At a hearing before the Bankruptcy Court on May 5, neither Bank of America nor Chase admitted any wrongdoing. At an earlier hearing, however, Bankruptcy Judge Robert D. Drain said he was considering referring the cases to the United States Attorney’s office and recommended that Chase’s attorney review the criminal section of the United States Bankruptcy Code.

The lawsuits have highlighted gray areas in the Bankruptcy Code and consumer debt laws concerning the responsibility of banks and other lenders to notify credit-reporting agencies of discharges after the banks or lenders have sold the applicable debts to other parties—in most instances debt buyers.

If you find yourself needing the services of an experienced Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.






Image Credit:

“Asbury Park Zombie Walk 2010 (5144852310)” by Hypnotica Studios Infinite from Toms River, New Jersey, USA – Asbury Park Zombie Walk 2010. Licensed under CC BY 2.0 via Wikimedia Commons –



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