Included in Bankruptcy but Reporting as “charged off”

A 1998 FTC staff letter addresses the question of whether a tradeline discharged in bankruptcy can be listed by a creditor as “charged off as bad debt”.  The CRA’s are obligated by Section 607(b) of the FCRA and must “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates”.  The report states “In our view, it is not a reasonable procedure to label an account that has been discharged in bankruptcy as ‘charged off as bad debt’ if the account was open and not charged off when the consumer filed bankruptcy.  Such a designation would be inaccurate or misleading, because it would indicate that the creditor had written off the account at the time of bankruptcy when it had not in fact done so”.   

The above opinion letter caught the attention of Fair Isaac and Company Inc. who later wrote the FTC in 1999 requesting clarification.  Of particular interest is the FTC’s response which paraphrases Fair Issac’s letter by stating “You state that (contrary to a comment attributed by Mr. Lovern to a Fair Isaac source in his letter to us) your risk scores assign the same number of points to a bankrupt tradeline regardless of whether that account is also reported as a chargeoff”.

(1998 FTC Letter: ftc.gov/os/statutes/fcra/lovern51.htm) 

(1999 FTC Letter: ftc.gov/os/statutes/fcra/mccorkel.htm)

For detailed information on cleaning a credit report after a bankruptcy discharge and improving your FICO score, the reader may view Credit Repair Bankruptcy.