My office gets many questions from consumers who have gone through the bankruptcy process about its effects on their credit reports. One of the key concerns is the length of time that their reports will show the bankruptcy filing. The Fair Credit Reporting Act (FCRA) prohibits consumer reporting agencies, or “CRAs” from reporting obsolete information on consumers’ reports. The FCRA sets different time frames for obsolescence of different types of information, however, and consumers are often mistaken about when the law considers bankruptcy information to be obsolete.
Two types of bankruptcy information might appear on a consumer’s report: (1) the public record of the bankruptcy itself, which comes from the docket of the federal bankruptcy court; and (2) historical information about accounts that were included in a bankruptcy, which comes from the creditor itself furnishes to the CRAs.
With respect to the public record information from the court docket, bankruptcies of any kind can remain on the credit report for TEN (10) years. If the bankruptcy is successful and results in a discharge, the ten years runs from the date of petition filing. See 15 U.S.C. § 1681c(a)(1). If the bankruptcy is unsuccessful, and results in a dismissal, then the ten years runs from the date of the dismissal of the bankruptcy. See FTC Staff Summary 605(a)(1), Item 3.
With respect to the accounts or “tradelines” for debts that were included in bankruptcy, the FCRA prohibits a creditor from reporting individual debts for any time frame longer than the normal obsolescence period under the FCRA for debts of that type. See FTC Staff Summary 605(a)(1), Item 1. The obsolescence period for an individual debt, however, is often shorter than the obsolescence period for bankruptcy. This means that a consumer may see a bankruptcy listed in the “public records” section of their report, even though accounts that the consumer included in the bankruptcy no longer appear on the report. This is understandably confusing, and can lead a consumer to believe that, since their accounts from the bankruptcy no longer appear on the credit report, that the CRA is wrongfully reporting the bankruptcy past its deletion date.
Let’s look at an example. In 2009, Chris Consumer received a personal loan from Community Bank. In 2011, after several years of on-time payments, Chris became ill and was unable to work. Without income, Chris could not make the personal loan payment that was due on July 1, 2011. Chris never made another loan payment. On August 1, 2011, Chris filed a petition for Chapter 7 bankruptcy, including the personal loan to Community Bank on the list of accounts to be included in the bankruptcy discharge. Because Chris filed for bankruptcy quickly, Community Bank had not yet placed the loan account out for collection or written it off as a charge-off. Chris received a bankruptcy discharge, and no longer owes the loan to Community Bank.
The FCRA mandates that after SEVEN (7) years from the date of delinquency, a CRA must remove from the consumer’s report the tradeline for a personal loan account such as Chris’s, where the lender never placed the account for collection or charged it off. See 15 U.S.C. § 1681c(a)(5). In Chris’s case, the delinquency occurred on July 1, 2011, when Chris failed to make the scheduled payment. Therefore, on or before July 1, 2018, the CRA must delete the Community Bank account from Chris’s report. In the meantime, the account can remain on Chris’s report, but the CRA must report the balance on the account as zero and indicate that the account has been discharged in bankruptcy. See FTC Staff Summary 607(6), Item 6.
Because Chris’s bankruptcy was filed on August 1, 2011, and the court granted Chris a discharge in bankruptcy, the CRA can report Chris’s bankruptcy until August 1, 2021, ten years from the date of the filing of the bankruptcy petition. Therefore, even though the individual Community Bank account will vanish from the report in 2018, the CRA is within its rights to continue to report the bankruptcy itself until the ten-year obsolescence date that Chris once filed for bankruptcy.
~Suzanne Begnoche practices in Chapel Hill, North Carolina and represents consumers with issues in the following areas of law: Collection harassment; Credit reporting; Identity theft or other financial fraud; Security breach; Debt collection lawsuit and Post-judgment exemption process. For more information, visit http://www.begnochelaw.com/.