The severe economic slowdown is forcing an increasing number of Americans to opt for bankruptcy to avoid paying debts. While not a sure way of getting out of debt, bankruptcy can protect consumers from lenders and creditors.
There are two kinds of bankruptcies. The first one, called a chapter 7 bankruptcy, releases the consumer from some or all of his or her debts. It essentially gives the cardholder a fresh start to re-establish credit and have a new lease on their financial life. The other kind, a chapter 13 bankruptcy, also offers protection for consumers. However, this particular protection only gives individuals another chance to settle debts on terms that are more manageable.
Approved chapter 7 bankruptcies mean that a consumer can regain a better credit standing because they are discharged from their debts. The final order of a bankruptcy court judge may include discharging several or all accounts with balances. This means that the accounts' balances should return to zero. When this happens, the cardholder's credit standing and scores should improve. Credit reports should also be free of any derogatory or unsatisfactory remarks connected to discharged accounts or unpaid balances. With these entries removed, consumers can expect their credit scores to improve significantly.
However, if these entries still appear in credit reports, cardholders have the right to dispute them. Even if the bankruptcy court has ordered that any outstanding balances be removed, some credit card companies and bureaus would continue to report balances. If the financial institutions in question do not alter the cardholder's records as mandated by law, then the complainants can take the matter to court and file a lawsuit for damages under federal law.
In order to ensure that credit bureaus and card companies comply with the law, consumers have to constantly monitor their credit records. One way to do this would be to ask for their credit reports from any of the three credit bureaus. These reports contain everything related to a cardholder's credit purchases and spending habits. They also contain changes to the consumer's credit records. Any discharged accounts should have the notation "included in bankruptcy." If they do not, then cardholders have the right to contest and dispute the matter.
Consumers can then send a formal dispute letter to the credit bureaus containing their complaints, and any proof or evidence. Cardholders must also include the bankruptcy court case number and the specific accounts and account numbers ordered discharged. If the credit agencies do not act on the request within the allotted time, or if the bureaus refuse to correct the errors, then cardholders can consider contacting a consumer protection attorney for assistance.