Consumer attorneys are manufacturing the recent surge of Fair Credit Reporting Act (FCRA) lawsuits nationwide against creditors and debt collectors that credit report on accounts included in a consumer’s bankruptcy. Cases in this latest wave of consumer lawsuits typically assert that prior credit reporting on accounts subsequently included in a bankruptcy violates the FCRA.
Bankruptcy Attorneys Now Pursue FCRA Claims Against Furnishers
The most recent FCRA claims begin with consumer bankruptcy attorneys conducting “post-bankruptcy discharge reviews” of their clients’ credit reports. The attorney review of consumer credit reports focuses on pre-bankruptcy credit reporting furnished by creditors and whether updated reporting reflects the consumer’s bankruptcy discharge. Since accounts included in a bankruptcy are often coded by furnishers as past due (or similar), many of these recent FCRA claims assert that an account is no longer past due after a bankruptcy discharge and thus the pre-bankruptcy credit bureau reporting is now inaccurate.
An Alarming New Trend
While most of the recent spate of FCRA cases assert that a furnisher failed to reflect that an account was included in a bankruptcy, some new cases assert that the creditor failed to reflect that a debt was not included in the bankruptcy discharge. In one recent court filing, the consumer asserted that he reaffirmed his debt and thus it was not included in his bankruptcy discharge. Therefore, the consumer claimed the furnisher’s report that the account was included in a bankruptcy was inaccurate and violated the FCRA. This case raises the specter of consumers “choosing” which debts to include -- and exclude -- from a bankruptcy filing and holding furnishers responsible under the FCRA for knowing and accurately reporting the consumer’s choices, regardless of the legal impact of a bankruptcy discharge on all indebtedness of the consumer.
How to Correctly Credit Report an Account Included in Bankruptcy
Court traditionally hold that the FCRA does not prohibit the accurate credit reporting of debts that were delinquent during the pendency of a bankruptcy action -- even after those debts have been discharged -- so long as the bankruptcy discharge is also reported. Further, the CDIA manual provides specific guidance and codes for reporting delinquent and bankrupt accounts. Many furnishers, however, choose to delete the credit bureau tradeline on accounts included in bankruptcy rather than risk an FCRA lawsuit for reporting the information inaccurately.
For more information on how to correctly credit report an account included in bankruptcy, please see this article.
Avoid and Defeat Post-Bankruptcy FCRA Claims
Creditors and other furnishers that defend against FCRA claims often focus on the damages the consumer alleged suffered due to inaccurate credit reporting. A consumer in bankruptcy would logically have difficulty establishing any damages from purported inaccurate credit reporting because the bankruptcy filing itself would damage the consumer’s credit for many years. A recent Ninth Circuit Court of Appeals decision agreed with this sound logic and affirmed the dismissal of the Plaintiffs' claims that Defendants improperly reported to the CRAs accounts included in bankruptcy, writing:
Plaintiffs here do not make any allegations about how the alleged misstatements in their credit reports would affect any transaction they tried to enter or plan to try to enter—and it is not obvious that they would, given that Plaintiffs’ bankruptcies themselves cause them to have lower credit scores with or without the alleged misstatements. They have therefore said nothing that would distinguish the alleged misstatements here from the inaccurate zip code example discussed by the Supreme Court in Spokeo. Indeed, Plaintiffs have not alleged that they tried to enter any financial transaction for which their credit reports or scores were viewed at all, or that they plan to imminently do so, let alone that the alleged inaccuracies in their credit reports would make a difference to such a transaction. Unlike the plaintiff in Spokeo, Plaintiffs did not say anything about what kind of harm they were concerned about, other than making broad generalizations about how lower FICO scores can impact lending decisions generally—without any specific allegation that lower FICO scores impact lending decisions regarding individuals who are already in Chapter 13 bankruptcy. Without any allegation of the credit report harming Plaintiffs’ ability to enter a transaction with a third party in the past or imminent future, Plaintiffs have failed to allege a concrete injury for standing.
Jaras v. Equifax No. 17-15201 (9th Cir. 2019).
However, please note that this ruling by the Ninth Circuit in Jaras is contrary to the ruling of the 11th Circuit Court of Appeals in Pedro, which established a different standard for determining whether a Plaintiff has suffered an injury sufficient to state a claim for relief:
Pedro alleged an injury that is both concrete and particular. Pedro alleged a concrete injury because the harm caused by the alleged violation of the Act— the reporting of inaccurate information about Pedro’s credit to a credit monitoring service—has a close relationship to the harm caused by the publication of defamatory information, which has long provided the basis for a lawsuit in English and American courts. See, e.g., Restatement (First) of Torts § 569 cmt. g (Am. Law Inst. 1938) (explaining that it is “actionable per se” to publish a false statement that another has “refus[ed] to pay his debts”). Pedro also alleged a concrete injury because she alleged that she “lost time ... attempting to resolve the credit inaccuracies.” Cf. Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D.D.S., P.A., 781 F.3d 1245, 1252– 53 (11th Cir. 2015) (explaining that the occupation of a fax machine during the transmission of an unwanted fax constituted a concrete injury). And Pedro’s alleged injuries affected her personally. Indeed, her credit score dropped 100 points as a result of the challenged conduct. Because Pedro alleged that she suffered an injury in fact, she has standing to pursue her complaint.
Pedro v. Equifax 868 F.3d 1275 (11th Cir. 2017).
The reporting of accounts included in bankruptcy is a practice that is under scrutiny and attack by the consumer bar. Furnishers must consult with an attorney to review and update credit reporting policies as they relate to bankrupt accounts. Further, any creditor, debt collector or other furnisher named as a Defendant in a case involving allegations of improper reporting of accounts in bankruptcy should carefully review with counsel the recent case law which provides some defenses, including complete defenses in certain circumstances.
Author's Note: This article is provided only as a general discussion of legal principles and ideas. Every situation is unique and must be reviewed by a licensed attorney to determine the appropriate application of the law to any particular fact scenario. If you have a legal question, consult with an attorney. The reader of this publication will not rely upon anything herein as legal advice and will not substitute anything contained herein for obtaining legal advice from an attorney. No attorney-client relationship is formed by the publication or reading of this document. Moss & Barnett assumes no liability for typographical or other errors contained herein or for changes in the law affecting anything discussed herein.