Erroneously reported credit information and unfair collection practices cost post-bankruptcy debtors many thousands of dollars of unnecessary costs in repaying debt. However, there are real and effective legal remedies to address and correct this problem.

No one is surprised that people who have filed bankruptcy petitions have difficulty obtaining credit. Most probably had difficulty before filing. However, in many cases debtors aren’t really able to take advantage of their fresh start due to continuous violations of their financial rights by their creditors.

The U.S. Fair Credit Reporting Act (“FCRA”, 15 U.S.C. § 1681 et seq.) and the U.S. Fair Debt Collection Practices Act (“FDCPA”, 15 U.S.C. § 1692 et seq.), along with several California statutes provide remedies for victims of wrongful credit reporting and collection practices.

Credit scores and reports are increasingly used by not only banks and lenders, but also by insurance companies, employers, and utilities to evaluate an applicant’s creditworthiness. It is not unusual for creditors to do “account reviews” to assess whether to extend more credit and such reviews are shown on credit reports even for closed accounts. Showing a review of a closed account reduces the applicant’s creditor worthiness and is a violation of the FCRA entitling the debtor to recover damages.

Creditors often fail to reduce the amount of debt reported to zero following a bankruptcy discharge, and the failure to do so may as well be a violation of both Acts. Further, the FDCPA prohibits all abusive collection practices, not merely those that seem to be outrageous.

Remedies for these violations include recovery of actual damages, statutory damages up to $1,000.00 for each violation, tort claims for punitive damages, injunctions and recovery of attorneys fees and costs.

To evaluate potential violations, debtors need to obtain a credit report following bankruptcy for analysis to determine if discharged debt has been reduced to zero, whether or not wrongful account reviews are shown as well as numerous other technical and actionable conduct.

Good practice would include ordering a credit report prior to filing the bankruptcy proceeding and another six months following the filing to make a comparison. But even if there is no pre-filing report, a review of a current report may provide important information for the debtor to improve his or her credit.

Recent studies by consumer advocacy groups show that 40% of credit reports reviewed contained inaccurate, and in many cases actionable information about the debtors. Falling below the acceptable credit rating level may cost a borrower significantly more money over the life of the repayment of a loan; this is particularly true in the case of mortgages. A graphic example is the following: A debtor, 4 years after discharge wants to obtain a 15-year home mortgage of $150,000. A credit score of 500 subjects the borrower to rates of 8.5-9.99% plus fees of $6,000. A credit score of 620 can entitle a borrower to an interest rate of 4.875-6.0% plus fees of $2500. The monthly payments range from $1,174 to $1603. The total savings over the life of the loan range from could be as much as $77,000 reflecting a significant amount in actual damages to a debtor.

The burden to clear up erroneous credit information rests with the debtor. The agencies that collect and disseminate such information do not follow uniform guidelines or rules. Oversight of such agencies is at best sporadic.

Debtors’ actions to recover damages for erroneously reported information or unfair collection practices when in sufficient number will have the salutary affect of requiring both credit reporting agencies and furnishers of credit information to exercise more care and accuracy to avoid substantial damage claims.

About Us:

N Jane DuBovy is a sole practioner in Pacific Palisades for 20 years specializing in consumer bankruptcy law and chair of the Los Angeles County Bar sub-committee on consumer bankruptcy. She has recently expanded her practice to include representation of debtors in violations of their rights under FCRA.

Michael H. White has been a practicing attorney for more than 30 years. Of special concern during that period has been providing assistance to clients in need of protection from creditors, reorganization of business and personal financial affairs and restoration of credit worthiness. He is a 1971 graduate of UCLA School of Law, a board member of Dispute Resolution Services, Inc. of the Los Angeles County Bar Association, a trained mediator and litigator and past-president of the Beverly Hills Bar Association.

Craig S. Elkin is a litigation attorney, and has successfully prosecuted and defended civil lawsuits for 26 years. He has litigated both for and against big insurance companies and corporations on cases that involved business disputes, medical malpractice and personal injuries. Recently, he was a lead attorney in Baines Pickwick v. ABC Bus Co., Inc., in which his client obtained a verdict of $965,000 against large corporation for fraud and misrepresentation. He received his Bachelor of Arts degree from U.C.L.A. and his Juris Doctor degree from Whittier Law School. He also does occasional voice-over work for TV and radio, and performs in community theatre.