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Even after Chapter 7, zombie debt can linger

When it comes to personal bankruptcy, one of the most powerful motivating factors for consumers is the chance to have many forms of debt eliminated through the discharge process. Once a Chapter 7 bankruptcy is complete, the consumer is no longer responsible for debts that were discharged. Having the chance for a fresh financial start is what draws Arkansas residents to seek bankruptcy protection in the first place.

That said, there are circumstances in which discharged debts can still pose a financial problem for consumers who have gone through the bankruptcy process. This occurs when the creditor fails to properly report the discharged debt to the appropriate credit reporting bureaus. As a result, the accounts are still noted as past due or delinquent, which can lead to serious credit difficulties.

When an account is not properly noted as being discharged through bankruptcy, the debt is sometimes referred to as a zombie debt. The account has been killed through the bankruptcy discharge process, yet refuses to die. For the purpose of credit score calculations, the account remains very much alive and can have a negative impact on one's credit.

The problem is significant enough to have gained the attention of some lawmakers, and proposed legislation is in the works to address the matter. Known as the Consumer Reporting Fairness Act, the proposed law would force creditors to report debts that were discharged through Chapter 7 or another form of bankruptcy as having a zero balance. If the change is not made upon request, consumers would have the right to pursue a civil suit against the creditor. Many Arkansas residents could benefit from this type of legislation, but for those who are planning to seek bankruptcy protection, it is always a good idea to check all three credit reports following bankruptcy and challenge and incorrect information.

Source: thefiscaltimes.com, "The Zombie Lurking in Your Last Debt Payment", David Dayen, July 17, 2015

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