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Consumer bankruptcy and zombies: The risk is real

On Behalf of | Dec 4, 2014 | Chapter 7 |

Going through a bankruptcy can be a tumultuous time in the life of a Maryland resident. There are a great many decisions that must be made in a limited range of time, and having to trudge through the paperwork involved can be a chore in and of itself. However, the end result is worth the short-term strain, and those who have come through a consumer bankruptcy are able to begin anew in their financial lives. That sense of a new beginning is placed at risk, however, when many in Maryland realize that some of the debts discharged during bankruptcy refuse to die.

These are zombie debts; accounts that were successfully discharged within the bankruptcy, but have not been properly removed from one’s credit history. This is no accident, many believe that lenders intentionally refuse to correct the information sent to credit bureaus, in the knowledge that some consumers will pay the debts in order to save their credit. Zombie debts bring on a particular set of concerns. Even though the consumer has no obligation to make payments on the accounts, the lender is still holding the borrower hostage.

In the months and years following a bankruptcy, consumers often go to great lengths to rebuild their credit and secure new accounts. However, when one’s credit report indicates that there are significant unpaid debts, it can be hard to convince a new creditor to open a new line of credit. For some, the only solution lies in making payments on accounts that were discharged through bankruptcy, just to avoid damage to credit standing.

An investigation by the U.S. Trustee Program is looking into whether some of the nation’s most prominent banking institutions, including Bank of America, J.P.Morgan Chase and Citigroup are in violation of the federal Bankruptcy Code by intentionally allowing zombie debts to follow borrowers long after their consumer bankruptcy cases are discharged. Depending on the outcome of that investigation, consumers in Maryland and beyond may not have to worry about these improperly reported debts in the years to come. For now, however, it is important to be aware of one’s credit report after bankruptcy, and to challenge those accounts that are improperly reported.

Source:, “Debts canceled by bankruptcy still mar credit scores”, Nov. 21, 2014

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