Collection Companies Are Still Collecting On Discharged Bankruptcy Debts
November 13, 2014

After I got divorced, my credit went down the tubes. After all, my income dropped by 60% and I was raising two kids whose father thought $70 a month in child support was plenty. So I ended up filing for bankruptcy. Now I have over $30,000 in assorted medical debt, thanks to one night in the hospital without insurance, and I've been thinking about filing again. (Thanks to people like Joe Biden, it now costs $1800 instead of the $60 I paid to file the last time. How many poor people can afford it? I guess that was the point. Right, Joe?)

After reading this story, I figure, why even bother? (Donald Trump's companies have filed four times and they gave him a TV show!)

I have no credit at all. (Also, I don't care about my credit rating.) What they're describing in this article has happened to me. They keep trying to collect money that was discharged long ago. But did I mention I don't care about my credit rating? It was the most emotionally freeing experience in my life when I gave up. Because while I've lost jobs because of my credit rating, there are always landlords and employers somewhere who are willing to give you a chance if you have good references - and I do.

I recommend it. Not everyone can live credit-free, but a lot more people can do it than they think:

In the netherworld of consumer debt, there are zombies: bills that cannot be killed even by declaring personal bankruptcy.

Tens of thousands of Americans who went through bankruptcy are still haunted by debts long after — sometimes as long as a decade after — federal judges have extinguished the bills in court.

The problem, state and federal officials suspect, is that some of the nation’s biggest banks ignore bankruptcy court discharges, which render the debts void. Paying no heed to the courts, the banks keep the debts alive on credit reports, essentially forcing borrowers to make payments on bills that they do not legally owe.

The practice — a subtle but powerful tactic that effectively holds the credit report hostage until borrowers pay — potentially breathes new life into the pools of bad debt that are bought by financial firms.

Now lawyers with the United States Trustee Program, an arm of the Justice Department, are investigating JPMorgan Chase, Bank of America, Citigroup and Synchrony Financial, formerly known as GE Capital Retail Finance, suspecting the banks of violating federal bankruptcy law by ignoring the discharge injunction, say people briefed on the investigations.

The banks say that they comply with all federal laws in their collection and sale of debt.

Still, federal judges have started to raise alarms that some banks are threatening the foundations of bankruptcy.

Judge Robert D. Drain of the federal bankruptcy court in White Plains said in one opinion that debt buyers know that a bank “will refuse to correct the credit report to reflect the obligor’s bankruptcy discharge, which means that the debtor will feel significant added pressure to obtain a ‘clean’ report by paying the debt,” according to court documents.

For the debt buyers and the banks, the people briefed on the investigations said, it is a mutually beneficial arrangement: The banks typically send along any payments that they receive from borrowers to the debt buyers, which in turn, are more willing to buy portfolios of soured debts — including many that will wind up voided in bankruptcy — from the banks.

In bankruptcy, people undergo intense financial scrutiny — every bank account, bill and possession is assessed by the bankruptcy courts — to win the discharge injunction, which extinguishes certain debts and grants a fresh start. The heavy toll of personal bankruptcy, which can tarnish a credit report for a decade and put some loans out of reach, is worthless, bankruptcy judges say, if lenders ignore the discharge.

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