personal bankruptcy

Does personal bankruptcy really cancel your debts?

A news article published in the New York Times describes an alleged practice in the United States in which certain banks are systematically ignoring discharge orders granted to individuals who had filed personal bankruptcy. These discharged bankrupts continue to be hounded by their creditors even after they’ve completed their bankruptcy and are strong-armed into repaying their debts by what may be considered extortion: “if you don’t pay us, we won’t update your credit file to indicate that this debt is no longer owed”. In many cases, these strong-arm tactics work because an updated credit report is needed by the discharged bankrupt to get a job, obtain a rental apartment or obtain insurance. So they end up paying off the debt, despite the fact that they no longer legally owe it.

Because the debt is kept “alive” through this practice, the bank can sell the account to a debt purchaser, with the purchaser believing that this is an account that is still being paid when in fact the debt has been cancelled due to the debtor’s bankruptcy discharge.

Class action lawsuits have been filed on behalf of the borrowers — the lawsuits accuse the banks of bolstering the value of their debt by refusing to erase debts that were discharged in bankruptcy.

Note that is happening in the United States. However, if you are a Canadian recently discharged from a bankruptcy or consumer proposal and are faced with a similar situation as described above, contact your trustee and have her investigate the matter.

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With over 20 years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. in 2007 so that he could dedicate his professional life to help people from all walks of life to deal with their debt.

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