Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is a bankruptcy discharge?”
Humberto Soto thought the $6,411 Chase credit card debt he incurred before his 2012 bankruptcy had been discharged, but when the 51-year-old former hospital worker tried to rent an apartment in January, a housing agency ran his credit and spotted the debt.
Soto called JPMorgan Chase, who held the debt. Chase told Soto he either had to pay or else lose the apartment. Soto called his lawyer, who called the housing agency. Soto got the apartment, and he did not have to pay Chase.
Soto’s experience is playing out by the thousand across the United States, with large financial institutions failing to extinguish debts that federal judges have ordered discharged in bankruptcy courts. By keeping the debts alive, banks are “essentially forcing borrowers to make payments on bills that they do not legally owe,” according to the New York Times. The Times calls the not-dead-yet debts “zombie” debts.
The banks say they comply with all federal laws regarding debt collection and sale of debt holdings, but lawyers in the United States Trustee Program are investigating Chase, Bank of America, Citigroup and General Electric’s financing arm, alleging that the institutions are effectively holding consumer credit reports hostage until borrowers pay—even borrowers whose debts have been discharged through bankruptcy.
After a borrower has passed through the bankruptcy process, banks are supposed to notify credit reporting agencies that discharged debts are no longer owed. Any “past due” or “charged off” notations must be removed.
Investigators say banking institutions are failing to notify credit reporting agencies of the discharges, and current and former bankruptcy judges suspect that the failures are not mistakes. They are part of new debt-collection tactics that financial institutions are using to breathe new life into “pools of bad debt” that are often purchased by financial firms.
Debt purchasers buy debts from debt holders for pennies on the dollar. Purchasers typically keep whatever they can collect from borrowers. The banks sell their bad debts to debt purchasers. The more value the debts have, the more likely it is that purchasers will buy more bad debt in the future, enabling banks to offload undesired liabilities.
Bankruptcy Judge Robert D. Drain said banks are refusing to correct credit reports to erase discharged debts, pressuring borrowers to clean up their credit reports by paying the debts. The banks pass along the payments to debt purchasers, giving the purchasers confidence that the debts they purchase have real value.
The arrangement—beneficial to the banks and debt purchasers—is harming consumers, advocates say. Judge Drain is overseeing a class-action lawsuit brought in United States Bankruptcy Court in White Plains, New York. In that lawsuit, the claimants allege that banks have bolstered “the value of their debt by refusing to erase debts that were discharged in bankruptcy.”
Chase moved to dismiss the lawsuit last summer, but Judge Drain ruled that the lawsuit “set forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt.”
If you find yourself needing the services of a 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 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.
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