When an Alabama consumer has received a bankruptcy discharge, this means the debts included in bankruptcy must NOT show a balance. (Click here to read the FTC commentary – excerpt included below). Studies show that approximately 70% of all accounts which should show a zero balance actually show a balance as owing. This means that a potential lender, apartment complex, employer, etc. looking at the credit report will think that the consumer not only filed bankruptcy but now also owes all of this additional money. This violates the Fair Credit Reporting Act and also state law.
The reason creditors do this may be simply negligence in updating the credit reports but given the level of violations, it sure looks like the real reason this is done is to extort the consumer into paying this debt. Here’s how this scam works — the account has a balance and is “parked” on your credit report. You go to refinance your house, get an apartment, get insurance, apply for a job involving credit checks, etc. and you get turned down because of this account balance. Or the mortgage broker says you have to pay off this balance before you can get the loan.
What do you do? Most people will be forced to pay this balance off even though it was discharged. Otherwise, they won’t get the loan, the job, the apartment, etc. What do the creditors say when you pay this off even though you don’t owe it? Extortion? No – they say it was “voluntary” payment.
The solution is if you have filed for bankruptcy and received a discharge, pull your credit reports and then dispute the items that show a balance. We have updated this post to show the link to one way that we recommend disputing discharged items – click here to read this new post.
In the meantime, if you have received a discharge in the last 7 years or so, pull your credit reports to see if balances are showing up on accounts that you discharged.
The full quote from the FTC commentary is:
6. Content of Report
A consumer report need not be tailored to the user’s needs. It may contain any information that is complete, accurate, and not obsolete on the consumer who is the subject of the report. A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy itself), as long as it reports a zero balance due to reflect the fact that the consumer is no longer liable for the discharged debt. A consumer report may include a list of recipients of reports on the consumer who is the subject of the report.
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