Wednesday, May 20, 2015

NY Times: Bank of America and JPMorgan Chase Agree to Erase Debts From Credit Reports After Bankruptcies

By Jessica Silver-Greenberg

Two of the nation’s biggest banks will finally put to rest the zombies of consumer debt — bills that are still alive on credit reports although legally eliminated in bankruptcy — potentially providing relief to more than a million Americans.

Bank of America and JPMorgan Chase have agreed to update borrowers’ credit reports within the next three months to reflect that the debts were extinguished.

The move is a victory for borrowers whose credit reports have been marred as a result of the reported debts, imperiling their job prospects and torpedoing their chances of getting new loans.

The change by the banks emerged this week in Federal Bankruptcy Court in White Plains, where the two banks, along with Citigroup and Synchrony Financial, formerly GE Capital Retail Finance, face lawsuits accusing them of deliberately ignoring bankruptcy discharges to fetch more money when they sell off pools of bad debt to financial firms.

The lawsuits accuse the banks of engineering what amounts to a subtle but ruthless debt collection tactic, effectively holding borrowers’ credit reports hostage, refusing to fix the mistakes unless people pay money for debts that they do not actually owe.

It is not the only pressure. Lawyers with the United States Trustee Program, an arm of the Justice Department, are investigating the banks, said several people briefed on the inquiry, about whether the banks are deliberately flouting federal bankruptcy law.

In an apparent, if oblique, reference to the inquiry, a lawyer for Synchrony Financial told the judge at a hearing this year that the lender was under “investigation” by the Justice Department.

JPMorgan, Synchrony Financial and Bank of America declined to comment for this article.

But the banks have offered defenses in court documents, arguing that they comply with the law and accurately report discharged debts to the credit agencies. Their lawyers have also argued that the banks typically sell off debts to third-party debt buyers and have no stake in recouping payments on the overdue bills. The banks’ practices were the subject of a front-page article in The New York Times.

Without admitting any wrongdoing, lawyers for JPMorgan Chase and Bank of America agreed to ensure that bankruptcies were registered on credit reports. A lawyer for JPMorgan Chase, according to court documents, said that by August the bank would ensure that all debts discharged in Chapter 7 bankruptcy were correctly recorded.

Late last year, Synchrony Financial agreed to provide similar relief, at least on a temporary basis.

Under federal law, once a borrower has erased a debt in bankruptcy, banks are required to update the credit reports to indicate that the debt is no longer owed, and remove any notation of “past due” or “charged off.”

Bank of America promised to go further, agreeing to fundamentally change the way the bank reports all the stale debts that are sold to financial firms. For all credit-card debts sold since May 2007, court records show, the bank will remove any marks on consumers’ credit reports. That way, a lawyer said, “should a previously sold credit card account go through a bankruptcy discharge,” the mark will already be gone.

Together, the decisions could help more than one million Americans.

They are people like Bernadette Gatling, a hospital administrator, who went through bankruptcy to void debts she owed on Chase credit cards. While the process was grueling, she said, she thought it would offer her a second chance.

She was floored in March 2014 when three years after bankruptcy, she found that her credit report was still marred by the seemingly unvanquishable debts.

“I lost job after job because of this,” she said, adding that potential employers would suddenly stop calling once they viewed her credit report.

There has been a fierce battle over the lawsuits, brought by Charles Juntikka, a bankruptcy lawyer in Manhattan, and George F. Carpinello, a partner with Boies, Schiller & Flexner.

Judge Robert D. Drain, who is presiding over the cases, has repeatedly refused the banks’ requests to throw out the lawsuits. In July, when he refused to dismiss the case against JPMorgan, he said, “The complaint sets forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt.”

At a hearing in April, transcripts show, the judge criticized Citigroup for not changing the way it reports debts to the credit reporting agencies. “I continue to believe there’s one reason, and one reason only, that Citibank refuses to change its policy,” the judge said. The reason, the judge went on, is “because it makes money off of it.”

In a statement, a spokesman for Citigroup said the bank “takes this issue very seriously,” adding that the bank has made a proposal to the plaintiff’s lawyers “consistent” with what the other banks have proposed.

In the hearing this week, lawyers for Citigroup indicated that they were on the brink of making a change similar to what Bank of America and JPMorgan Chase have agreed to, an alteration that could change the credit reports of tens of thousands of people. For many borrowers, the credit report is the difference between getting a job and being turned down.

With so much at stake, borrowers are willing to do almost anything — even pay debts that they worked hard to discharge in bankruptcy.

Diane Torres, who went through bankruptcy in 2010, said she was on the verge of becoming one of the people who paid for debts she no longer owed. The only thing that stopped her, Ms. Torres said, was that she could not afford it.

The problems began, Ms. Torres said, when she applied for a job with a credit union and was told that her credit report showed she had two delinquent accounts — one on a Chase credit card and the other on a credit card from GE Money Bank. Unless she fixed the problem, Ms. Torres said, she would not get the job.

When she contacted both lenders, Ms. Torres said, she was told that unless she paid, the debts would remain as charged off.

“I felt desperate,” she said. “It was urgent that I pay these debts or else I would not get the job that I really needed.” But after, at the suggestion of her bankruptcy lawyer, she provided the credit union with a record that she had voided the debts in bankruptcy, she got the job.

Associated Press: Study: Bankruptcies soar for senior citizens

By Associated Press
First came the health problems. Then, unable to work, Ada Noda watched the bills pile up. And then, suffocating in debt, the 80-year-old did something she never thought she'd be forced to do.

She declared bankruptcy.

While the bankruptcy filing rate for those under 55 has fallen, it has soared for older Americans, according to a new analysis from the Consumer Bankruptcy Project, which examined a sampling of noncommercial bankruptcies filed between 1991 and 2007.

The older the age group, the worse it got — people 65 and up became more than twice as likely to file during that period, and the filing rate for those 75 and older more than quadrupled.

"Older Americans are hit by a one-two punch of jobs and medical problems and the two are often intertwined," said Elizabeth Warren, a Harvard Law School professor who was one of the authors of the study. "They discover that they must work to keep some form of economic balance and when they can't, they're lost."

That's precisely what happened to Noda. She worked all her life, on a hospital's housekeeping staff, and later selling boat tickets to tourists. She cut corners when she needed to but always paid the bills she neatly logged in a ledger.

"I was born during the Depression," she said. "I paid the bills whether I ate or didn't, whether I went to the doctor or not."

It all worked fine for Noda, a widow for 23 years, until she was forced to undergo double-bypass surgery and deal with respiratory problems. She started using two credit cards more frequently for food and bills. Before long, she was $8,000 in debt and behind on car payments.

"I'd go to bed and all I had on my mind was bankruptcy," she said. "I had nothing left."

Noda's car was repossessed, but her trailer home wasn't in jeopardy because her daughter owns it. While she's covered by Medicare and receives $968 in Social Security each month, she relied on her job for other expenses. She had no choice but to get help from Jacksonville Legal Aid and declare bankruptcy.

Most bankruptcies are still filed by people far younger than Noda, but the percentage the younger filers make up has fallen over the 16-year period, according to the Consumer Bankruptcy Project analysis, which will be published in the Harvard Law and Policy Review in January.

In 1991, the 55-plus age group accounted for about 8 percent of bankruptcy filers, according to the study, which looked at more than 6,000 cases filed in 1991, 2001 or 2007. By last year, filers 55 and over accounted for 22 percent.

Each age group under 55 saw double-digit percentage drops in their bankruptcy filing rates over the survey period, older Americans saw remarkable increases. The filing rate per thousand people ages 55-64 was up 40 percent; among 65- to 74-year-olds it increased 125 percent; and among the 75-to-84-year-old set, it was up 433 percent.

A number of factors are contributing to the increase. Higher prices for ordinary consumer goods have hit seniors on fixed budgets. For older Americans living below the poverty level, or not far above, a safety net likely doesn't exist for economic setbacks such as medical problems. And some fall prey to scams that cripple their finances.

Warren noted increasing numbers of Americans are entering their retirement years with significant debt and are still paying off mortgages. She said it was wrong to assume that lives of luxury are bankrupting seniors; rather, they're incurring debts to meet needs such as medical treatment.

"There's no evidence that the problem is consumerism," the professor said.

Nor is there a significant aging trend to blame. While the country is set to experience a notable age shift in the coming years, no major one took place between 1991, when the average age was 33, and 2007, when it was 36.

Frank and Hazel Peters lived frugally their entire 53-year marriage. They always rented a home but decided after the husband's retirement from a factory job that they would cash in his 401(k) and buy a manufactured home down a gravel road in tiny Hastings, a town of cornfields and potato farms.

But they fell victim to fraud when they tried to fix a plumbing problem that had black, sulphur-smelling water coming through the pipes of their new home without enough funds to fall back on. They declared bankruptcy.

"We knew we had no other option," 73-year-old Hazel Peters said. "We'd probably be out on the street."

Bankruptcy, tough no matter a person's age, is especially hard when you don't have many years left to recover. Warren said some seniors fear telling their families because they're afraid they'll be put in a nursing home if they're seen as unable to take care of their affairs.

Many who file also express a sense of relief.

Wilona Harris, 71, filed bankruptcy two years ago because of medical bills she and her husband accrued.

"This phone rang all the time. It made you not even want to pick up. Sometimes you think, 'Let me go jump off a bridge somewhere,'" Harris said at her Jacksonville home. "You have to cry and try and figure out what in the world could I do."

At least now, Harris says, she can fall asleep without crying.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.