Consumer attorneys are manufacturing the recent surge of Fair Credit Reporting Act (FCRA) lawsuits nationwide against creditors and debt collectors that credit report on accounts included in a consumer’s bankruptcy. Cases in this latest wave of consumer lawsuits typically assert that prior credit reporting on accounts subsequently included in a bankruptcy violates the FCRA.
Bankruptcy Attorneys Now Pursue FCRA Claims Against Furnishers
The most recent FCRA claims begin with consumer bankruptcy attorneys conducting “post-bankruptcy discharge reviews” of their clients’ credit reports. The attorney review of consumer credit reports focuses on pre-bankruptcy credit reporting furnished by creditors and whether updated reporting reflects the consumer’s bankruptcy discharge. Since accounts included in a bankruptcy are often coded by furnishers as past due (or similar), many of these recent FCRA claims assert that an account is no longer past due after a bankruptcy discharge and thus the pre-bankruptcy credit bureau reporting is now inaccurate.
An Alarming New Trend
While most of the recent spate of FCRA cases assert that a furnisher failed to reflect that an account was included in a bankruptcy, some new cases assert that the creditor failed to reflect that a debt was not included in the bankruptcy discharge. In one recent court filing, the consumer asserted that he reaffirmed his debt and thus it was not included in his bankruptcy discharge. Therefore, the consumer claimed the furnisher’s report that the account was included in a bankruptcy was inaccurate and violated the FCRA. This case raises the specter of consumers “choosing” which debts to include — and exclude — from a bankruptcy filing and holding furnishers responsible under the FCRA for knowing and accurately reporting the consumer’s choices, regardless of the legal impact of a bankruptcy discharge on all indebtedness of the consumer.
How to Correctly Credit Report an Account Included in Bankruptcy
Court traditionally hold that the FCRA does not prohibit the accurate credit reporting of debts that were delinquent during the pendency of a bankruptcy action — even after those debts have been discharged — so long as the bankruptcy discharge is also reported. Further, the CDIA manual provides specific guidance and codes for reporting delinquent and bankrupt accounts. Many furnishers, however, choose to delete the credit bureau tradeline on accounts included in bankruptcy rather than risk an FCRA lawsuit for reporting the information inaccurately.
For more information on how to correctly credit report an account included in bankruptcy, please see this article.
Avoid and Defeat Post-Bankruptcy FCRA Claims
Creditors and other furnishers that defend against FCRA claims often focus on the damages the consumer alleged suffered due to inaccurate credit reporting. A consumer in bankruptcy would logically have difficulty establishing any damages from purported inaccurate credit reporting because the bankruptcy filing itself would damage the consumer’s credit for many years. A recent Ninth Circuit Court of Appeals decision agreed with this sound logic and affirmed the dismissal of the Plaintiffs’ claims that Defendants improperly reported to the CRAs accounts included in bankruptcy, writing:
However, please note that this ruling by the Ninth Circuit in Jaras is contrary to the ruling of the 11th Circuit Court of Appeals in Pedro, which established a different standard for determining whether a Plaintiff has suffered an injury sufficient to state a claim for relief:
The reporting of accounts included in bankruptcy is a practice that is under scrutiny and attack by the consumer bar. Furnishers must consult with an attorney to review and update credit reporting policies as they relate to bankrupt accounts. Further, any creditor, debt collector or other furnisher named as a Defendant in a case involving allegations of improper reporting of accounts in bankruptcy should carefully review with counsel the recent case law which provides some defenses, including complete defenses in certain circumstances.
By John Rossman