Two of the nation’s biggest banks will finally put to rest the zombies of consumer debt — bills that are still alive on credit reports although legally eliminated in bankruptcy — potentially providing relief to more than a million Americans, the New York Times DealBook reported yesterday. Bank of America and JPMorgan Chase have agreed to update borrowers’ credit reports within the next three months to reflect that the debts were extinguished. The change by the banks emerged this week in Federal Bankruptcy Court in White Plains, N.Y., where the two banks, along with Citigroup and Synchrony Financial, formerly GE Capital Retail Finance, face lawsuits accusing them of deliberately ignoring bankruptcy discharges to fetch more money when they sell off pools of bad debt to financial firms. The lawsuits accuse the banks of engineering what amounts to a subtle but ruthless debt collection tactic, effectively holding borrowers’ credit reports hostage, refusing to fix the mistakes unless people pay money for debts that they do not actually owe. Lawyers with the United States Trustee Program, an arm of the Justice Department, are investigating whether the banks are deliberately flouting federal bankruptcy law.
