In the past, if you filed for personal bankruptcy protection, your credit report is supposed to be updated to reflect that you no longer have to pay those bills and that the debts have been discharged as part of the bankruptcy. However this has not always been the case for some people.
The truth is the three big credit reporting bureaus have not always been very good about doing that for those who have filed for bankruptcy in the past. Over last few years however, they have become much better, says John Ulzheimer, president of consumer education at SmartCredit.com. This is a good thing for those managing life after bankruptcy!
The reason for this change says Ulzheimer, is a settlement agreement the bureaus reached to as part of a class-action lawsuit in which he was an expert witness on behalf of plaintiffs in the suit.
The class-action case, which initially started as multiple suits in both 2005 and 2006, stated that the major credit bureaus (Experian, Equifax and TransUnion) issued credit reports saying that consumers were delinquent in making payments on debts that had been should have been eliminated in bankruptcy. This caused confusion and countless headaches for those that had filed. Some plaintiffs also said that the credit bureaus did not even try investigate the errors, even after they made the bureaus aware of a problem. This only caused further frustrations for consumers.
A financial settlement of $45 has been approved by the trial court for the suit but was thrown out in April by the United States Court of Appeals for the Ninth Circuit. The appeals court discovered that in some of the cases that were part of the lawsuits, various plaintiffs in the case stood to benefit more than others, creating an improper conflict which was not fair on a whole.
Recent improvements in the bureaus' bankruptcy reporting procedures had already gone into effect as part of an earlier agreement reached for one part of the suit in 2008 stated Mr. Ulzheimer.
As part of that settlement, the credit bureaus also agreed to put in place systems to ensure all debts that accrued before bankruptcy were accurately reported and recorded as being included in a bankruptcy filing. This was if the debts from the filing party are eligible, of course. Anyone who has ever looked into to filing for bankruptcy knows that some debts, such as student loans, cannot be discharged in a bankruptcy.
Bankruptcy and its negative effect can remain on your credit report for years, 10 years with Chapter 7 filing. So you can imagine what a huge deal is if your report incorrectly shows that you still owe some debts it is like the bankruptcy did little to help you out of your second chance at rebuilding your credit and improving your credit score.
Now it is true that in the year to two years after you immediately file bankruptcy, your credit rating will suffer greatly. This is supposed to be the time when you work on getting back on track and gaining financial health. If you stay on top of new debts, most people should gradually begin to improve and within three years, see an improvement in their credit scores. However if an old debt or multiple old debts are still incorrectly shown as due and payable, your credit score would be worse than it should be and you may feel like you filed for nothing.
Ulzheimer agreed that accurately reflecting the status of your debts “makes the best out of a bad situation.”
Although you should not expect all traces of prior delinquency to disappear overnight. If you look at Experian’s Web site they note that “after a debt is discharged in a bankruptcy, the associated account is not immediately deleted from your credit history”. What this means according to the site, the accounts are “updated” so show they are included in the bankruptcy, so there is no balance due. This is why it is important to run your credit reports regularly after Chapter 7.
If you filed bankruptcy did you check your credit report after filing? Did the report accurately reflect your debts? What did you do if you found debts still there?
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