Debt Discharge Lawsuits in Washington

Amidst lawsuits filed by former debtors, whose debts were discharged in various bankruptcy proceedings – including Chapter 13 bankruptcy filings, two major US banks have announced their plans to delete negative credit reporting records of some borrowers. These debt discharge lawsuits in Washington and similar actions in other states have prompted a significant shift in credit reporting practices, indicating a growing acknowledgment of the legal and ethical implications of retaining such information for individuals who have successfully sought relief through bankruptcy.

Bank of America and J.P. Morgan Chase & Co. were among several banks accused of unfair reporting after allegedly sending notices to credit reporting agencies that a borrower’s account was ‘past due’ or ‘charged off’ instead of ‘discharged’.

Discharged Debts Being Sold to Credit Collectors?

The lawsuits also accused top banks of ‘ruthless’ credit collection strategies – selling off debts that are legally discharged in court. By not deleting the past due accounts and marking them as ‘past due’ or ‘charged off’, discharged debtors felt compelled to pay off the recorded debts in order to clean their records for improving job prospects and obtaining new loans.

Without admitting fault or wrongdoing, the two banks announced that they will ensure that bankruptcies will be correctly noted in credit reports.

Under Federal law, debtors who have paid their debts under a repayment plan in Chapter 13 bankruptcy are entitled to an updated credit report where the discharged debt no longer appears as owed – even though the Chapter 13 plan may not have paid the debt in full. A creditor is required to report the status of a debt accurately.  Thus, the banks are required to remove any notation of the debt being ‘past due’ or ‘charged off’ and replace it with “discharged in bankruptcy” instead.

The plaintiffs in the lawsuit against the banks claimed that a notation of ‘charged off’ has a more negative impact than a debt being discharged.  The reason is that when a debt is “charged off”, it is still technically owing.  The charging off of a debt simply means that the creditor has written off the debt as “bad” and will no longer pursue it.  However, charged off debts can be sold to debt collectors who will attempt to collect them. A discharged debt, conversely, is no longer owed.

About Chapter 13 Bankruptcy

Chapter 13 of the Bankruptcy Code offers debtors, who continue to have steady incomes, a remedy for managing mounting debt. Under this chapter, the debtor will propose a repayment to creditors by outlining an installment payment plan lasting 3 to 5 years, depending on the debtor’s current monthly income. This remedy can help a debtor save a home from foreclosure because the filing of a bankruptcy petition can stop foreclosure proceedings.  A Chapter 13 also allows the debtor to catch up on delinquent mortgage payments over a period of time.

Unpaid Debts Can Be Overwhelming

Mounting pressure from unpaid financial obligations can overwhelm you and leave you feeling helpless. If you continue to have regular income and are able to follow a repayment plan for the next few years, a Chapter 13 bankruptcy may be for you. The process of filing the petition and other paperwork is complex, however, and you will need an attorney who understands the law and will, more importantly, empower and uplift you during this most trying time.

In Vancouver, Washington, the Law Office of Erin Bradley McAleer can help sort out your financial obligations and create a repayment plan that is acceptable to your creditors. We welcome your call today at (360) 334-6277 to speak to one of our experienced attorneys.