Court ruling corrects credit report inaccuracies after bankruptcy…
A new court ruling by Judge David O. Carter, U.S. District Court for the Central District of California, will give millions of consumers who filed for bankruptcy a second chance at a fresh start. The court order stems from a class-action lawsuit alleging that each of the credit bureaus violated the Fair Credit Reporting Act by failing to maintain responsible procedures to insure the accurate reporting of debts that have been discharged after bankruptcy.
The problem occurred because debt that was forgiven in bankruptcy judgments was still being reported on consumer’s credit reports. In many cases, old debts continue to linger on credit reports if lenders don’t update their records, or if collection agencies ignore the fact that debts were discharged in bankruptcy. The court mandated change comes as U.S. consumer bankruptcy filings jumped 29.2% to 96,413 in August, According to the American Bankruptcy Institute, and Chapter 7 filings rose to 67.6% of total personal bankruptcies in the second quarter of 2008 from 56.1% as of the first quarter of 2006.
The three major credit report agencies, Experian, Equifax, and TransUnion will have to clean up the credit files of consumers who filed for Chapter 7 bankruptcy and revamp their systems to handle key information in bankruptcy filings correctly. The new procedures should ensure that anyone who files for bankruptcy in the future will have more accurate credit reports. The ruling is expected to clean up the credit files of an estimated 6 -10 million people who have filed for Chapter 7 bankruptcy but still have errors in their files, according to plaintiffs’ attorneys.
“There’s no question that having a Chapter 7 bankruptcy has a negative impact on your creditworthiness,” says Michael Sobol, one of the plaintiffs’ attorneys on the class-action case. “But when you have a bankruptcy, and you also have debts showing up as overdue and not paid — that is a double hit.” Consumers will have to request a new credit report to see if the errors have been fixed, which they can do free of charge at www.AnnualCreditReport.com.
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