Prisoners of Debt - Lenders keep debt discharged in bankruptcy listed until paid.

[Liberal_in_LA]

http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db20071031_039775.htm?chan=rss_topStories_ssi_5

Prisoners of Debt
A fresh start with bankruptcy? Big lenders keep squeezing money out of consumers whose debts were canceled by the courts

by Robert Berner and Brian Grow

The case of Van Rathavongsa illustrates how canceled debts regain vitality. The Raleigh (N.C.) factory worker pulled himself out from beneath a mountain of bills by means of a bankruptcy proceeding that wrapped up in 2002. One of the debts the judge canceled, or "discharged," was $9,523 Rathavongsa owed to Capital One Financial (COF), the big credit-card company. But Capital One continued to report the factory worker's discharged debt to credit bureaus as a live balance, according to documents filed in U.S. Bankruptcy Court in Raleigh.

This kind of failure by creditors to update credit reports happens with some frequency, consumer lawyers and court-employed bankruptcy trustees say. And it can have consequences: In September, 2003, when Rathavongsa tried to close on a $274,650 mortgage for a new house, his would-be lender, Wachovia (WB), said he would either have to pay Capital One or show proof from the credit-card company that the debt had been discharged. Despite several calls and a letter from his attorney, he says, Capital One never revised the credit report. To obtain the home loan, Rathavongsa eventually did what many consumers in this situation do. He gave in and paid Capital One $9,523 he no longer legally owed.

[sasquatch]

1. Charge them with extortion

[lligrd]

5. I Think RICO Should Apply To Them nt

[Selatius]

2. Pass a law compelling creditors to report discharged debt to credit bureaus.

That should put an end to the market for discharged debt.

[izquierdista]

6. Laws? Creditors are above the laws

They also ignore court orders such as property settlements in a divorce. If your ex- files for bankruptcy, guess who they start going after to collect on the debt? That's right, the one whose property interest was removed by court order. You may have no legal rights to the property, be it a credit card or some real estate, but since your name was on it a few years ago, by God, they still think they can collect from you!
Another example of large corporations using the law when it suits their interest, and ignoring the law when it doesn't.

[lligrd]

3. Crap One Is Famous For This Kind Of Chit

And this measly fine sure won't stop them.

"In February, 2004, the judge ordered the company to repay the $9,523, as well as $14,000 in fines and attorney's fees for its "cavalier attitude toward the debtor's motion."

[lligrd]

4. And Why Aren't The Credit Reporting Agencies

held accountable. They are equally responsible for allowing the shit to continue.

[conscious evolution]

7. I thought credit reporting companies

could be held liable for incorrect information.
I seem to remember reading one time where credit agencies and former creditors can be sued if you are refused a loan based on incorrect information.

[lligrd]

8. I Think That Is True But All They Have To Do Is Claim

they didn't know. Very expensive and time consuming to sue them.

[depakid]

14. They certainly can

Based- among other things, on the Fair Credit Reporting Act.

http://en.wikipedia.org/wiki/Fair_Credit_Reporting_Act#Civil_liability_for_willful_violations_of_the_FCRA

And a person can do that in Small Claims!

[Jacobin]

9. I fault Wachovia for being an ass hat

Wachovia was provided with the order of discharge showing that this debt was discharged. A credit report means nothing in terms of the validity of a debt. Credit reports are notoriously flawed and full of errors. Lenders need to get a grip and stop acting like credit reports are anything but a collection of data.

[kedrys]

10. Thanks for the story and link - we filed this summer

Our debt has been discharged under Chapter 7, but we still get calls from time to time from people who want to help us settle our debt for pennies on the dollar. Many of the calls are from India :grr:. You can hear the glee in the callers' voices as they look forward to getting their cut by making you an offer you can't refuse.

Our lawyer gave us instructions on how to deal with those guys, but now I'll also check our credit reports every couple of weeks instead of once a month. One of the creditors keeps reporting our accounts as overdue, even though our bankruptcy case has been finalized and they have been duly informed (it's Merrick Bank, not Crapital One).

Thanks again! :hi:

[Liberal_in_LA]

26. Glad this article was helpful to you. Don't let the bloodsuckers get to you.

[flashl]

11. Zombie debt industry

'Zombie' debt is hard to kill

There's a hot new growth industry: companies that buy ancient bad debts for pennies and squeeze you to pay. Here's how to get them off your back.

Today, however, collecting on old debts is a rapidly expanding industry. Aggressive companies can buy charged-off credit card accounts from the original lenders for pennies on the dollar or less. Then, they use credit-scoring and other new technologies to identify which debtors are most likely to pay. The players in this "junk debt" market range from fly-by-night outfits to well-established companies funded by Wall Street investors.

Read More...

[depakid]

13. The woman in the link got a $40,000 judgment on an alleged $5,045 debt

Not bad.

Could be that having those scam artists after you could be a pretty good deal.

Provided that you know your rights, (or get pissed off enough to find out what they are) and document everything for the court.

[truebrit71]

17. That is very useful advice....

All consumers should be up to speed on their rights when it comes to this sort of thing.

[Blackhatjack]

12. Junk Debt Buyers are doing the same thing...

They buy up for pennies on the dollar old debts that are barred by the statute of limitations(meaning they can never file suit to collect the debt) and begin contacting the individual threatening 'to take action' unless they are paid.

One of the 'actions' many use is they report the debt obligation to credit bureaus even though the debt was incurred over 7 yrs ago. They do this by getting the individual to make any kind of payment on the debt, no matter how small, to revive the debt. This damages the individual's credit, and they begin making negative reports every month and refuse to correct the record without being paid.

Of course this is against the law, but it does not stop them.

This does not even address reports that they threaten to have people arrested within in the hour unless they pay, or tell people 'we have ways of collecting this money tough guy."

[Kingshakabobo]

15. This case is a little weird in that it should have been handled without having to pay Capital One.

I agree the credit reporting agencies and Capitol One, and all the rest, are responsible for maintaining inaccurate information in the reports.....and someone needs to make it stop. In that regard, I'm happy for all the lawsuits it takes to hold the credit bureaus and lenders accountable. I hope the borrowers clean their clocks.

I have a 10 year old credit card PAID debt that still shows as a balance in my reports. It was originally a First USA account - the goddamn thing has been sold so many times it has made it's way all the way back to my current bank where I do all my banking. MY bank is still reporting a balance but they don't have enough records to clear the account or give me any information :banghead: I haven't disputed the account because I know if I did it would re-appear six months later - it's not derogatory so it isn't worth the hassle.

It just seems strange that the mortgage company couldn't clear this up prior to closing. I get the feeling they were dealing with some 800 number mortgage service person that was either too lazy or too stupid to help these borrowers out. This is the level of service people receive when they deal with on-line/800 number mortgage companies.

In case this comes up for any DUers:

I can think of several different ways to prove, without much effort, a debt has been discharged in bankruptcy. It behooves people that go through a major legal proceeding such as bankruptcy to keep their documents - INCLUDING the schedule of discharged debts that SHOULD have settled the matter for the mortgage company. Secondly, they should have been able to obtain a copy from their attorney. Thirdly, the mortgage company COULD have and SHOULD have received a copy, with about ten minutes of work, by downloading the PUBLIC bankruptcy documents on-line from the federal P.A.C.E.R. website for 8 cents per page. Fourthly, the mortgage company's credit reporting agency could have investigated the claims and made the adjustment in 24 to 48 hours.


If you need your bankruptcy papers, you can go here and download for about 8 cents a page. A report will cost you 3 or 4 dollars.

http://pacer.psc.uscourts.gov/

[truebrit71]

16. What he SHOULD have done is contact the credit reporting bureaus of the inaccurracy...

...rather than contact the credit company...All he would have had to do is provide the reporting agencies with the court documents showing the discharge and it would have been wiped off his record.

He should sue his attorney for the money he coughed up...

[Selatius]

19. It wouldn't matter. You're screwed either way.

Even if you went to the credit bureau and got them to correct the record, there is nothing stopping this third party debt collector from simply selling your discharged debt to yet another company, and this new company can again ruin your record by reporting its newly acquired debt as active, not dead, so you'd be forced to repeatedly correct the credit bureau because the companies are lying to it. You may have to go to court on both ends to stop the cycle.

Ultimately, I think this requires government intervention to end this market. This is one zombie that needs a bullet in its head to put it down permanently.

[truebrit71]

20. Agreed....this shit needs to stop...

..

[Lance_Boyle]

18. How do you go bankrupt one year,

and then close on a $275K home the very next year? Did he win the lottery in between those two events?

[backscatter712]

22. Medical debt?

People could be perfectly solvent and responsible with their finances, then one day get hit by a bus or have a kidney stone or something like that, then get screwed by their insurance provider, and boom, they instantly owe $100,000.

That's when you declare bankruptcy - if you're keeping up with your mortgage payments and car payments and such when you're hit with a debt monster like this, you can save your house, and maybe save enough of your creditworthiness that you can still buy a house afterwards.

[Lance_Boyle]

23. the creditworthiness thing is what I wondered about

I thought bankruptcy clean-slated your credit record, so that you start over. In which case there would be pretty much no way to qualify for a mortgage within a year. It would be like a college freshman with no credit history applying for a mortgage.

So, you're saying it's possible (or was, before the recent "overhaul") to declare bankruptcy and somehow salvage your credit at the same time? That's news to me. Thanks for the response!

[backscatter712]

24. Bankruptcies count as a big black mark on your credit record.

The bankruptcy itself will come up, as it's on public court records. It'll stay in your credit records for ten years.

The debts from the bankruptcy will show as discharged.

It'll completely tank your FICO score.

That said, there are some lenders who love customers who just got out of bankruptcy. Reason? Once you've finished with a bankruptcy, you can't declare bankruptcy again for seven years. Until that time, they OWN you...

[dysfunctional press]

21. so- when push comes to shove- he REALLY DOES have the money to pay...

i'm not saying what capital one did was right-but it certainly seems odd that the guy would go bankrupt to get out from under debts he created, but then have the means to get a $274,000 mortgage the next year, PLUS being able to cough up $9500 for capital one...:shrug:

[judaspriestess]

25. weird

The Raleigh man filed a motion in bankruptcy court in November, 2003, asserting that Capital One had improperly failed to update his credit report. U.S. Bankruptcy Judge A. Thomas Small agreed. Capital One, Small wrote in December, 2003, "most likely received notice" of Rathavongsa's bankruptcy filing, as indicated by the company's having ceased trying to collect the debt. Because Capital One never responded to Rathavongsa's motion, the judge wrote, "the court can assume that Capital One filed the erroneous credit report for the purpose of pressuring Rathavongsa to pay a discharged debt." In February, 2004, the judge ordered the company to repay the $9,523, as well as $14,000 in fines and attorney's fees for its "cavalier attitude toward the debtor's motion."

Damn, what complete utter bullshit for this guy to have to go through this