Credit Reports Don’t Have to Disclose Bankruptcy Plan

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Daniel Gill

Credit reports don’t have to mention a debtor’s pending Chapter 13 plan, a California federal judge ruled March 31 ( Reckelhoff v. Experian Info. Sols, Inc. , 2017 BL 106941, N.D. Cal., No. C 16-6378 SBA, 3/31/17 ).

Defendants Experian Information Solutions, Inc., Equifax, Inc. and two banks reporting to the agencies did not have an obligation to list the court-approved Chapter 13 plan, which provided for payments to creditors, according to the opinion of Judge Saundra Brown Armstrong of the U.S. District Court for the Northern District of California.

The opinion is significant for reporting agencies and creditors.

Daina Reckelhoff filed a Chapter 13 case on April 30, 2015. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of her debts over a three- to five-year period. If the creditor makes all the payments under the plan, she receives a discharge of her remaining debt, meaning that it is wiped out.

The court confirmed, or approved, her payment plan on June 2, 2015. Reckelhoff noticed that her credit reports didn’t note her bankruptcy or the payment plans and made demands to have them corrected, but the defendant agencies failed to reflect the terms of her Chapter 13 plan, the court said.

Reckelhoff sued for damages under the federal Fair Credit Reporting Act and California’s corollary law, the California Consumer Credit Reporting Agencies Act. The defendants moved to dismiss the lawsuit.

The court found for the defendant creditors and reporting agencies and dismissed the lawsuit. While credit reports would have been obligated to reflect if the underlying debts were discharged by her bankruptcy, no discharge had yet occurred and would not occur until the conclusion of her payment plan. The court noted that there was no guaranty that a discharge would be granted.

"[T]he mere confirmation of a payment plan is insufficient to alter the legal status of a debt; this is so because if a debtor fails to comply with the Chapter 13 plan, the debtor’s bankruptcy petition can be dismissed—in which case the debt will be owed as if no petition for bankruptcy was filed,” it said.

Reckelhoff was represented by Sagaria Law, P.C., San Jose, Calif. Experian was represented by Jones Day, San Francisco. Equifax was represented by by Nokes & Quinn APC, Laguna Beach, Calif. And JP Morgan Chase Bank was represented by Covington and Burling LLP, Washington.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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