Does an Automatic Stay Stop Credit Reporting in New Jersey?

Does an Automatic Stay Stop Credit Reporting in New Jersey?

As bankruptcy lawyers practicing in New Jersey we encounter a lot of confusion from our clients about what creditors can and can’t do after the case gets filed. For example, many of our clients are surprised to find their creditors continuing to report delinquent accounts to Experian, TransUnion and Equifax even after they file. After all, an “automatic stay” which stops collection actions is one of the benefits of filing for bankruptcy in the first place.

This is one of those areas of bankruptcy law where the answer hasn’t always been clear. Recently, in 2017, a case called In re Porcoro, 565 B.R. 314 (Bankr. D.N.J. 2017) prompted the courts to take a stand.

“As the issue was a case of first impression in the Third Circuit, the bankruptcy court reviewed cases decided throughout the country discussing the reporting of debts to credit agencies in the context of violations of the discharge injunction. Id. at 321-26. The bankruptcy court concluded that, as analogous to a violation of the discharge injunction, a creditor making a report to a credit agency with the goal of extracting or collecting payment would be deemed to violate the stay. Id. at 325-26. On the other hand, a mere report with no evidence of harassment, coercion or other link to show that the act is likely to be effective as a debt collection device, would not violate the stay. Id.” – New Jersey Law Journal

In clearer terms, your creditors are free to continue reporting delinquent accounts to any credit reporting agency as long as these reports meet a few simple criteria.

First, the reports must be accurate. If you’re 90+ days late on a payment you’re 90+ days late, and there’s not much that can be done to keep a creditor from continuing to report that fact.

Second, the reports must be simple reports. Your creditors can’t use the reports to try to urge you to pay the debt. If you get a call that says “pay us what you owe or we’ll make sure this information appears on your credit report,” then your creditors would be in violation of the stay. But most creditors don’t really use credit reporting that way. For the most part reporting is automatic, often handled by software that keeps track of delinquent accounts. It goes without saying that late payments show up on credit reports.

Still, your creditors should avoid even so much as giving the appearance that they are trying to use reporting to collect the debt.

Third, the reporting must be in compliance with the Fair Credit Reporting Act.

Finally, they can only continue the reporting clear up until your discharge.

To understand this, you need to understand the difference between filing for bankruptcy and receiving a bankruptcy discharge.

Filing means only that you’ve opened a bankruptcy case. You’ve petitioned the courts either for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. At some point the courts will review your case and grant one or the other.

If you are pursuing a Chapter 7 bankruptcy your bankruptcy, and your debts, will be discharged when the courts agree you are eligible for a Chapter 7 bankruptcy. At that point the debt no longer exists, so there’s nothing for the creditor to report on. The only thing that should show up on your report in regards to that debt is “legally discharged through bankruptcy” or some similar notation. If the creditor continued to report late payments after that they’d be running afoul of the Fair Credit Reporting Act, as they’d now be supplying credit reporting agencies with false information.

If you’re pursuing a Chapter 13 bankruptcy the discharge is a little less straightforward. You might not see the discharge for 3 to 5 years. You’ll be making payments on your debts according to a payment plan set by a court-appointed trustee, who will disburse the funds to your creditors as he or she sees fit. Your discharge will not be awarded until you complete every aspect of the Chapter 13 plan.

Many Chapter 13 filers never complete the plan, which means they never receive their discharge…it’s possible to fall behind on Chapter 13 payments just as it’s possible to fall behind on any other payments, and when that happens the bankruptcy case gets dismissed. Chapter 13 debtors are in it for the long haul, and in New Jersey creditors may continue to report until the process is complete. It’s even in their interest to do so, because they know the Chapter 13 process may fail.

There are many other benefits of an automatic stay, however, and the bankruptcy process is not really the time to worry about your credit report. Focus on receiving your discharge. You can address your credit score after you’ve received your fresh start.

 

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