Reporting of a Discharged Mortgage After Chapter 7 Bankruptcy
FACTS: mortgage for investment property discharged as part of ch7 bankruptcy proceedings in 2010. Up until the present time, the loan servicer has aggresively attempted to collect the balance, and has continually reported the discharged debt to credit agencies - causing my credit score to plummet, significantly reducing my ability to obtain loans and disregarding the discharged status of my debt.
QUESTION: From what small amount I know on the topic, this is a clear violation of the fair debt collection practices act, but I am also curious as to whether this violates any New Jersey laws. Any ideas?
Re: Reporting of a Discharged Mortgage After Chapter 7 Bankruptcy
Do you still have the property, or was that sold in the bankruptcy? If you no longer have the property then attempts to collect on the debt would be a violation of the bankruptcy discharge order. A violation of the discharge order can be serious for the creditor. I’ll assume you’ve given the creditor the bankruptcy information, including the discharge order. If after you did that it attempted to collect what was owed, then you ought to see a bankruptcy attorney about going to the bankruptcy court for sanctions for violating the discharge order.
Reporting the debt to the credit bureaus without also noting that the debt was discharged in bankruptcy would also be a violation of the discharge order as that is an effort to collect the debt. It is fair for the credit report to show that you defaulted on the loan and that it was discharged in bankruptcy, though. You have the right under the federal Fair Credit Reporting Act (FCRA) to contact the credit bureaus and ask them to correct the entry so that it’s accurate: i.e. that it shows the debt was discharged in bankruptcy. While that also dings your credit, the effect of that will fade the further in time you get from the discharge.
The federal Fair Debt Collection Practices Act (FDCPA) applies to debt collectors. It does not apply to the original creditor (which includes a creditor who bought the loan prior to it going into default). So if this was the original creditor, the FDCPA will not apply. Also, it only applies to collection of consumer debt. As this was an “investment property” it may be that it was not consumer debt, in which case the FDCPA will not apply. More details on the property and the loan would be needed to determine that. If the FDCPA applies, attempting to collect a debt that the creditor knows it cannot enforce is a violation of the FDCPA. So far as I can tell from a quick look at NJ law it does not have any laws that would be directly on point on this, though it appears that there have been efforts in NJ to pass its own version of the FDCPA. You might want to see a consumer rights attorney about what remedies you may have here under the FDCPA and/or any NJ law.