Multiple major banks being targeted by the Justice Department for alleged violations of federal law.
In a move that is harming tens of thousands of Americans, many major banks seem to be deliberately ignoring bankruptcy court discharges, allowing expunged debts to remain on credit reports for years or even a full decade after the debtors declared bankruptcy.
According to state and federal officials, this tactic is likely part of an effort on the banks’ part to make their packages of consumer debt more attractive to collection agencies. Banks routinely pass along defaulted accounts to these agencies, which purchase the bad debts for pennies on the dollar and then hound consumers until they pay the full amount. Of course, many of the debts they purchase will never be repaid. Sometimes consumers simply do not have the means to pay, while in other cases they are able to discharge the debts by filing for bankruptcy.
After a debtor secures a court order discharging their debts, it is the lender’s responsibility to notify the credit bureaus that the debt has been expunged. According to experts, this routinely fails to happen. Though the banks claim clerical error, many current and former bankruptcy judges suspect that these “mistakes” are part of a deliberate business strategy.
By essentially holding the debtor’s credit report hostage, the bank increases the chances that the debtor will eventually pay off a debt they no longer legally owe simply to improve their credit score. Debt collection agencies like this because it increases the chances that they will make a profit off of the bad debts they buy from banks, and banks like it because it means they can sell more debts to collection agencies at better prices.
Lawyers from the Justice Department’s United States Trustee Program are currently investigating JPMorgan Chase, Bank of America, Citigroup, and Synchrony Financial for allegedly violating federal bankruptcy law by failing to act upon discharge orders.
Officials are rightfully concerned, as this practice threatens the very foundations of bankruptcy. After all, the entire point of bankruptcy is to provide individuals faced with overwhelming debt the chance at a fresh start. If the debts are not removed from the individuals’ credit report after discharge, this fresh start becomes severely impaired or even impossible. Examples abound of individuals failing to secure a new job, a mortgage, a car loan, or an apartment due to their credit scores continuing to be depressed by the presence of debts that had been cleared via bankruptcy and should have been removed. In some cases, having a bankruptcy attorney explain the situation to the new employer, lender, or landlord helped.
If you are looking for a path out of overwhelming debt, contact California Bankruptcy Relief today to learn more about your rights and options.
