A new order out of the Central District Court of California dramatically changes the way certain accounts are reported by Experian, Transunion and Equifax, the three major credit-reporting bureaus. The order arises out of one issue in a class action suit filed against these entities. It only affects files in which a Chapter 7 discharge has been granted. Chapter 13 reporting remains the same.
If the credit bureau has a file on a consumer that obtained a Chapter 7 discharge in the past or does acquire one in the future, it must change how most pre-bankruptcy debt is reported. Any debts that arose prior to the filing of a discharged Chapter 7 are assumed discharged. These accounts must be shown as “discharged” at a $0 balance or be excluded from the individual’s credit report.
Non-dischargeable debts as defined by the Bankruptcy Code, such as student loan debt, certain tax debts and debts declared non-dischargeable by a bankruptcy court are not affected and will continue to be reported as they are now.
Creditors that report consumer accounts to these agencies will soon receive new procedures from the bureaus on how to report consumer debts that arose prior to a Chapter 7 discharge. The order affects reporting on civil judgments, tradelines, installment contracts, mortgage accounts, revolving accounts, lines of credit, all open accounts and all collection accounts.
Creditors are not responsible for making retroactive changes to any accounts previously reported, nor are creditors responsible for notifying the bureaus in the future that a Chapter 7 case has been filed, or that a discharge has been granted. These are burdens imposed on the bureaus.
This is a major change in reporting pre-Chapter 7 bankruptcy debt. Rather than showing discharged debt with a balance due, the credit reports will show a balance of $0. The intention is that consumers get a “fresh start” on their credit report as well as from the discharge, and are not haunted by collections on debts that are forever stayed from collection.
If you have any questions on this information, please contact Ms. Monette W. Cope, Esq.
Monette is a senior associate in the Bankruptcy Department of Weltman, Weinberg & Reis Co., L.P.A. in Chicago, Illinois. She can be reached at (312) 253-9614 or via e-mail at mcope@weltman.com.
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