I see faulty credit reporting all the time. After pulling credit, I (or Aimee) will review the credit report with the borrower. It is amazing how many times we see active accounts which have been discharged during a bankruptcy.Â
Quite honestly, I’m not sure how much this affects the credit score, but it certainly will not help. Oftentimes things go smoothly, as long as the borrower has paperwork to prove the debt was included as part of the bankruptcy. However, with lending standards tightening, you can never be sure.
This Yahoo! Finance article “Prisoners of Debt“ has helped me understand how discharged debt can reappear in your credit report as an active account. It has to do with dubious practices on behalf of creditors and the resulting growing trade in discharged debt papers.
Traditionally, once a debt has been discharged the account is supposed to be worthless. However, creditors are still selling these worthless papers to buyers. It seems to appear that as this sale occurs because someone somewhere believes they will be able to collect on the discharged debt. The article I mentioned above has stories of people who were forced to pay on dishcarged debt when they were about to buy a home.
What is sad is that many people are being trapped into paying back debt they were legally absolved from. This seems to be a thriving cottage industry and some of the major players in this market are even listed on Nasdaq! Wow.
So, what does it mean for you? It means you need to be proactive. Keep tabs on your credit report by doing an annual credit review. If you find errors promptly contact the creditors and ask them to update the report. Alos, make sure you keep records of all your communication (take summary notes of telephone conversations, keep copies of any letters).
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