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Court clarifies reporting rules in bankruptcy

Kentucky residents may have heard about a court ruling that says a pending Chapter 13 repayment plan didn't have to be disclosed on a debtor's credit report. This was the ruling of a federal court judge in California in a case involving Experian Information Solutions, Inc., Equifax, Inc. and two banks that reported to the agencies. In 2015, the plaintiff filed for Chapter 13 bankruptcy, which allows those who have regular income to reorganize their debts.

The bankruptcy petition was filed in April 2015 and was approved in June 2015. When the plaintiff noticed that her pending plan was not noted on her credit reports, she asked for her information to be corrected. She then filed a lawsuit citing the Fair Credit Reporting Act as well as the California Consumer Credit Reporting Agencies Act. The defendants asked the the suit be dismissed, and the court agreed with the defendants.

It was dismissed because the debts had not yet been discharged and would not be discharged until the end of the repayment plan. If they had, the credit agencies would be obligated to note that the underlying debts had been discharged as part of a Chapter 13 bankruptcy. Since the bankruptcy petition could be dismissed for failure to make payments, merely having a plan confirmed was not enough to change the legal status of the debt.

Those who are looking for debt relief may benefit from filing for Chapter 13 bankruptcy. In addition to the potential to reorganize debts, a debtor may also be entitled to an automatic stay of creditor collection efforts. This may provide time to renegotiate the terms of a secured loan.

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