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Big banks accused of skirting around bankruptcy discharge

Many Michigan residents have turned to bankruptcy in order to get relief from financial obligations so that they can rebuild their lives after a business failure, a job loss or some unexpected emergency. When a Michigan resident files bankruptcy, he or she rightly expects that most of his or her debt will be discharged and thereby uncollectible.

The discharge is the key to a successful bankruptcy since it legally erases a person's prior debts so that he or she can get a fresh financial start. It is somewhat disturbing, then, that a recent report states that bankruptcy officials are investigating several large banks for engaging a subtle scheme to pressure debtor who have received a discharge into paying old debts that, presumably, they could not afford.

Legally, banks must update credit information so that the major credit-reporting firms will show that an old debt was discharged in bankruptcy. Allegedly, banks have consistently failed to do so, not because of carelessness, but as part of a plan to squeeze debtors into "voluntarily" repaying the discharged debt. When banks do not update their credit information, a debtor can find himself or herself either having to remove the black mark on their credit report or having to go without a job or an apartment.

No matter what one's explanation for doing so, it is simply not legal for a bank, or any other creditor, to violate a valid discharge order once the creditor knows of the order's existence. Should a bank or other creditor engage in underhanded tactics to skirt this law, a debtor may have legal remedies available to him or her so that he or she can protect the fresh financial start that he or she has been given.

Source: telegram.com, "Debts canceled by bankruptcy still held over consumers' heads," Jessica Silver-Greenberg, Nov. 13, 2014.

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