Know your rights: Debts discharged through bankruptcy

Banks do not always report debt discharged through bankruptcy to credit reporting agencies.

When an individual goes through challenging financial times, he or she has options to regain solid footing. For many people, filing for Chapter 7 or Chapter 13 bankruptcy is the appropriate solution to an otherwise untenable financial situation.

By filing for personal bankruptcy, individuals are able to start fresh, wiping clean many of the debts they may have accrued. The benefits of filing for Chapter 7 or Chapter 13 bankruptcy are significant, allowing individuals to discharge certain types of debt. Under Chapter 13 proceedings, individuals are able to create a repayment plan for many types of debt.

Banks sometimes fail to erase discharged debts

According to a recent report by The New York Times, however, banks may not always abide by the terms of the bankruptcy proceedings. In many cases, individuals who have gone through bankruptcy erroneously believe they are still responsible for debts that were discharged through the bankruptcy proceedings.

When someone files for bankruptcy and a debt is discharged, the bank is then responsible for updating the credit reporting agency, to ensure the debt is erased from the individual's credit report. In some cases, however, banks fail to provide updated information to the credit reporting agencies. Consequently, the discharged debt remains on the individual's credit report, driving down their credit score.

Individuals who have not sought legal counsel often believe they are responsible for repaying the debt, even though it was discharged. In some cases, individuals have chosen to pay the debt, knowing it was discharged, because the black mark on their credit score is preventing them from getting a new job or buying a new home.

In an effort to hold these financial institutions accountable for this bad practice, the United States Trustee Program has launched an investigation. The branch of the Justice Department is seeking to determine whether many large banks - including Bank of America, Citigroup and JPMorgan Chase - violated bankruptcy law.

Seek legal guidance for post-bankruptcy issues

While the Justice Department investigates these financial institutions on a large scale, individuals who believe their debts have not been properly erased from their credit score should take prompt action.

In such cases, seeking the counsel of a skilled bankruptcy attorney is a good first step to protect your interests. Individuals who have discharged debts through bankruptcy should not continue to be affected by the negative mark on their credit report. If you are experiencing post-bankruptcy difficulties, consult with a qualified bankruptcy lawyer to ensure your rights are safeguarded.

Keywords: credit report, bankruptcy