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Zombie Debts Get a Headshot

Two of America’s biggest banks just took a smackdown in federal court over their practice of keeping bills alive on consumers’ credit reports that should have been discharged in bankruptcy. In Federal Bankruptcy Court in White Plains, New York the banks JP Morgan Chase, Bank of America, along with Citigroup and Synchrony Financial faced lawsuits contending that they are in violation of federal law with regard to debts discharged in bankruptcy.

Debts typically discharged in bankruptcy are the following:

  • Credit card balances, late fees, and other charges.
  • Accounts in collection. Medical bills.
  • Past due utility bills.
  • Repossession balances.
  • Bounced checks – as long as they are not written with fraudulent intent.
  • Payday loans – as long as not taken out when you intend to file for bankruptcy.

For those filing bankruptcy, these and other debts are typically wiped out by the court. JP Morgan Chase and Bank of America and other institutions stand accused of ignoring federal bankruptcy laws, and indeed undermining the very foundations of bankruptcy proceedings.

Why It Hurts

It’s not as if someone filing bankruptcy gets off scot-free and goes merrily skipping into the world to get a new charge card. Bankruptcy is an exhausting process where the debtor undergoes serious scrutiny into their financial affairs. Being able to wipe the slate clean is not without consequence, making it hard to obtain credit, loans, or mortgages. However, worse than that, having zombie debt on your credit report can also raise insurance premiums or lead to being denied insurance all together because of credit scoring, or even being denied a job because of old debts still on your record.

The banks keep these items on a credit report, essentially holding you hostage until you pay the debt. And here’s the kicker, even if they bundle and sell the debt, they still make money. The lawsuits depict the banks as keeping those debts on the credit reports of people who have been granted bankruptcy discharges, selling the pool of bad debts to third party collection firms, and refusing to remove the debts – which are not actually owed. The banks argue that they report discharged debts to credit reporting companies, and that they have no stake in the debt once it is sold to the third part company. However, under federal law, once a borrower has that debt discharged, the banks are required to report that the debt is no longer owed, without any annotation that the debt was past due or charged off.

The Banksters Back Down

Without admitting any wrongdoing, of course, JP Morgan Chase and Bank of America have agreed to ensure that bankruptcies are reported and registered on credit reports. Judge Robert Drain, who has repeatedly refused to dismiss the lawsuits, stating when refusing to dismiss the suit against Chase, “The complaint sets forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt.”


The banks, protestations to the contrary, have all but admitted that what they are doing is in direct contravention of bankruptcy law. At Van Horn law group, experienced bankruptcy attorneys can help you before, during, and after a bankruptcy to make sure that you’re treated fairly and lawfully. Big banks have proven that they’re bullies, so get a fighter on your side.

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Chad Van Horn

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