Chapter 13<br><b><i><font="-1">Best Practices in Credit Reporting</b></i></font>

The FCRA was enacted to regulate credit reporting agencies (CRAs). It was designed to protect the privacy of consumer report information (credit reports) and to guarantee that information supplied by data furnishers and CRAs is as accurate as possible.

If you report information about consumers to a CRA, you are subject to the FCRA's Furnisher Rule, which requires that: 1) information that is furnished must be accurate and complete; and 2) consumer disputes about the information you provide must be investigated. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), as well as other federal banking agencies, each have published a Furnisher Rule, all of which are identical.

The Consumer Data Industry Association (CDIA) is an international trade association that represents CRAs to federal and state legislature and to the media. The CDIA has two functions: 1) it sets industry reporting guidelines; and 2) it educates its members. The CDIA created the “Metro-2 Standard” (Metro-2), which is a data specification created for data furnishers to use to report a consumer's credit history to the major credit bureaus electronically and in a standardized format.

The CDIA also has published a manual that it claims to be a guide and the “Industry Standard” for consumer reporting (the Manual). Numerous courts have found that the Manual is not binding and, therefore, violations of the guidelines are not per se violations of the FCRA. Moreover, some courts have said that following the CDIA Manual and Metro-2 are defenses to FCRA actions. These decisions are unclear and murky. It is these guidelines and standards that plaintiffs are using to attempt to bring claims against CRAs and data furnishers, as discussed more fully below.

Reporting Discharged Debts in Any Case

There should be no dispute that a debtor's credit report must be updated once the debtor's debt has been discharged in a bankruptcy case, whether it is a Chapter 13 or a Chapter 7. A debtor's credit report also must be updated if a Chapter 13 plan has been completed pursuant to its terms, and the debtor's bankruptcy has been discharged and closed. The credit report must show that the debt is no longer owed, and any notation of “past due” or “charged off” must be removed for a discharged debt. In addition, the balance should be zeroed out, and it should be reported that the debt was “discharged in bankruptcy” or “included in bankruptcy.” Any failure to do this as to the discharged debt could subject the CRA or the furnisher to liability.

Credit Reporting During a Pending Chapter 13

The CDIA Manual and Metro-2 standards provide that, if a creditor continues reporting during the pendency of a Chapter 13 plan (after the plan is confirmed but before the discharge), it should report the debt according to the new Chapter 13 plan. However, this does not seem practical in all instances. Take, for instance, a Chapter 13 plan that has a duration of five years, and proposes to pay unsecured creditors “a pro rata share of $2,500.00 or 0% whichever is greater,” where the unsecured debt is in excess of $30,000.00.

Plaintiffs' FCRA attorneys are taking the position that, based on the CDIA Manual, the failure to report the new “agreement” per the confirmed Chapter 13 plan is a violation of FCRA. Plaintiffs have argued that furnishers' non-compliance with the CDIA Manual and Metro-2 renders the credit reporting inaccurate and therefore a violation of the FCRA. They argue that the confirmed plan creates a new contract between the parties, and therefore under bankruptcy law, the debt should be reported based on the new agreement (the confirmed plan) between the parties. However, how does a creditor know what the amount due is in the above referenced scenario, and how can a furnisher possibly report an accurate figure due based on this type of Chapter 13 plan?

The meaning of “inaccuracy” under the FCRA remains highly litigated. The federal district courts in the Northern District of California appear to have rejected the argument that non-compliance with CDIA guidelines renders the information furnished inaccurate. In Blakeney v. Experian Info. Solutions, Inc., 2016 U.S. Dist. LEXIS 107916 (N.D. Cal., Aug. 15, 2016) the Northern District of California dismissed the plaintiff's FCRA claim, where the plaintiff alleged that the furnisher supplied misleading and inaccurate information to the CRA by reporting information after the plaintiff's Chapter 13 filing and confirmation of the repayment plan.

In Blakeney, the plaintiff alleged that the furnisher failed to conduct a reasonable investigation into the terms of the plaintiff's Chapter 13 plan or investigate the impact of the plan. Id. at *2. The plaintiff additionally alleged that the furnisher supplied inaccurate and misleading information by reporting that the account was in collections, charged off, and a past due and balance was owed after the Chapter 13 filing and plan confirmation. Id. at *3.

The court found that “confirmation of plaintiff's Chapter 13 bankruptcy plan is not equivalent to discharge of debts covered under plaintiff's Chapter 13 bankruptcy plan, and plaintiff is not entitled to receive a discharge of debts covered under plaintiff's Chapter 13 bankruptcy plan until plaintiff has completed all payments provided for under the Chapter 13 plan. Thus, it was not misleading or inaccurate for [the furnisher] to report plaintiff's delinquent debts. Because plaintiff's debts have not been discharged, [the furnisher] had no obligation to reference plaintiff's bankruptcy proceeding.” Id. at *3-4.

This decision is wholly consistent with the Bankruptcy Code. A discharge is not entered until all plan payments have been satisfied. If the debtor fails to satisfy the payments, the case could be dismissed and in that case, the original debt would not be discharged. It is consistent then that the furnisher's reporting is not inaccurate.

More recently, in Biggs v. Experian Info. Solutions, Inc., 2016 U.S. Dist. LEXIS 130742 (N.D. Cal., Sept. 22, 2016) another recent case out of the Northern District of California addressing this issue, the district court stated:

While the court acknowledges that “[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan” and preclude “a creditor from asserting, after confirmation, any other interest than that provided for it in the confirmed plan,” confirmation of a reorganization plan cannot be equated with a bankruptcy discharge, mainly because not every confirmation ultimately results in a discharge. The bankruptcy court may discharge the trustee only after the debtor “complies with his obligations under the confirmed plan and makes all of the required payments”; if that occurs, the debtor obtains an injunction against creditors' ability to proceed against him or her personally. Many debtors, however, fail to complete a Chapter 13 plan successfully, often because they cannot make payments on time. Recognizing this, the Bankruptcy Code permits debtors who fail to complete their plans to convert their Chapter 13 case to a case under a different chapter, or dismiss their case entirely … . But importantly, upon dismissal or conversion of a case, a debtor loses any benefits promised in exchange for the successful completion of the plan,” such as a discharge injunction. This observation is especially pertinent here since documents subject to judicial notice reveal that Plaintiff was at one time facing the possible dismissal of her Chapter 13 case because she failed to make payments according to the § 1327 plan.

In short, there are still several scenarios that may ensue even after a reorganization plan is confirmed, including at least one that leaves all pre-bankruptcy debts … in place.

(Internal citations and quotations omitted); see also Mestayer v. Experian Info Solutions, Inc., 2016 U.S. Dist. LEXIS 19265 (N.D. Cal., Feb. 17, 2016) (dismissing an FCRA case where the plaintiff challenged the pre-discharging credit reporting as a FCRA violation).

It is unknown how other circuits will come out on this issue. But, based on the fluidity of the law in the area of consumer protection, the courts likely will have differing opinions on this issue.

Best Practices

Even in these uncertain times, you can avoid liability or litigation by engaging in these practices:

• Stop all credit reporting on a debt during the pendency of the Chapter 13 case. This is the easiest way to avoid liability.
• Make sure to follow the CDIA guidelines and Metro-2 Codes whenever reporting a debt. Check and double check the information that is available about the debtor's debt and re-confirm that the reporting is correct.
• Have procedures (and more procedures) in place to make sure that correct codes are being used and that guidelines are being followed (see second item above).
• File objections to the debtor's Chapter 13 where necessary. There may be instances where this is too burdensome or not cost efficient, but there should be some process by which you examine this issue. If the debt is important enough to report, it may be worth it to object to the plan if grounds to do so exist.
• Adjust the credit reporting for the debt according to the new Chapter 13 plan, if feasible.
• Actively monitor the debtor's Chapter 13 case.

*****
Amy Drushal and Lara Roeske Fernandez are shareholders at Trenam Law in Tampa, FL, practicing in the Bankruptcy, Creditors' Rights & Insolvency Practice. Drushal can be reached at [email protected] and Fernandez at [email protected].

There is a new trend emerging in Fair Credit Reporting Act (FCRA) litigation involving Chapter 13 bankruptcy, a Chapter known as a “wage-earner's plan” under which debtors propose a repayment plan to make installment payments to creditors over three to five years. Increasingly, plaintiffs are filing suit based on certain credit-reporting actions taken (or not taken) during a pending Chapter 13 bankruptcy case, after plan confirmation but prior to the entry of the discharge — when a debtor has met all requirements set by the court.

Although the law is clear as to the responsibilities for reporting a discharged debt in a Chapter 7 or Chapter 13 bankruptcy, it is not as clear about the responsibilities and liabilities associated with reporting debt during the pendency of a Chapter 13 case. This article examines the best practices in credit reporting for companies during a consumer bankruptcy case.

What Is the Governing Law And Who are the Players?

The FCRA was enacted to regulate credit reporting agencies (CRAs). It was designed to protect the privacy of consumer report information (credit reports) and to guarantee that information supplied by data furnishers and CRAs is as accurate as possible.

If you report information about consumers to a CRA, you are subject to the FCRA's Furnisher Rule, which requires that: 1) information that is furnished must be accurate and complete; and 2) consumer disputes about the information you provide must be investigated. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), as well as other federal banking agencies, each have published a Furnisher Rule, all of which are identical.

The Consumer Data Industry Association (CDIA) is an international trade association that represents CRAs to federal and state legislature and to the media. The CDIA has two functions: 1) it sets industry reporting guidelines; and 2) it educates its members. The CDIA created the “Metro-2 Standard” (Metro-2), which is a data specification created for data furnishers to use to report a consumer's credit history to the major credit bureaus electronically and in a standardized format.

The CDIA also has published a manual that it claims to be a guide and the “Industry Standard” for consumer reporting (the Manual). Numerous courts have found that the Manual is not binding and, therefore, violations of the guidelines are not per se violations of the FCRA. Moreover, some courts have said that following the CDIA Manual and Metro-2 are defenses to FCRA actions. These decisions are unclear and murky. It is these guidelines and standards that plaintiffs are using to attempt to bring claims against CRAs and data furnishers, as discussed more fully below.

Reporting Discharged Debts in Any Case

There should be no dispute that a debtor's credit report must be updated once the debtor's debt has been discharged in a bankruptcy case, whether it is a Chapter 13 or a Chapter 7. A debtor's credit report also must be updated if a Chapter 13 plan has been completed pursuant to its terms, and the debtor's bankruptcy has been discharged and closed. The credit report must show that the debt is no longer owed, and any notation of “past due” or “charged off” must be removed for a discharged debt. In addition, the balance should be zeroed out, and it should be reported that the debt was “discharged in bankruptcy” or “included in bankruptcy.” Any failure to do this as to the discharged debt could subject the CRA or the furnisher to liability.

Credit Reporting During a Pending Chapter 13

The CDIA Manual and Metro-2 standards provide that, if a creditor continues reporting during the pendency of a Chapter 13 plan (after the plan is confirmed but before the discharge), it should report the debt according to the new Chapter 13 plan. However, this does not seem practical in all instances. Take, for instance, a Chapter 13 plan that has a duration of five years, and proposes to pay unsecured creditors “a pro rata share of $2,500.00 or 0% whichever is greater,” where the unsecured debt is in excess of $30,000.00.

Plaintiffs' FCRA attorneys are taking the position that, based on the CDIA Manual, the failure to report the new “agreement” per the confirmed Chapter 13 plan is a violation of FCRA. Plaintiffs have argued that furnishers' non-compliance with the CDIA Manual and Metro-2 renders the credit reporting inaccurate and therefore a violation of the FCRA. They argue that the confirmed plan creates a new contract between the parties, and therefore under bankruptcy law, the debt should be reported based on the new agreement (the confirmed plan) between the parties. However, how does a creditor know what the amount due is in the above referenced scenario, and how can a furnisher possibly report an accurate figure due based on this type of Chapter 13 plan?

The meaning of “inaccuracy” under the FCRA remains highly litigated. The federal district courts in the Northern District of California appear to have rejected the argument that non-compliance with CDIA guidelines renders the information furnished inaccurate. In Blakeney v. Experian Info. Solutions, Inc., 2016 U.S. Dist. LEXIS 107916 (N.D. Cal., Aug. 15, 2016) the Northern District of California dismissed the plaintiff's FCRA claim, where the plaintiff alleged that the furnisher supplied misleading and inaccurate information to the CRA by reporting information after the plaintiff's Chapter 13 filing and confirmation of the repayment plan.

In Blakeney, the plaintiff alleged that the furnisher failed to conduct a reasonable investigation into the terms of the plaintiff's Chapter 13 plan or investigate the impact of the plan. Id. at *2. The plaintiff additionally alleged that the furnisher supplied inaccurate and misleading information by reporting that the account was in collections, charged off, and a past due and balance was owed after the Chapter 13 filing and plan confirmation. Id. at *3.

The court found that “confirmation of plaintiff's Chapter 13 bankruptcy plan is not equivalent to discharge of debts covered under plaintiff's Chapter 13 bankruptcy plan, and plaintiff is not entitled to receive a discharge of debts covered under plaintiff's Chapter 13 bankruptcy plan until plaintiff has completed all payments provided for under the Chapter 13 plan. Thus, it was not misleading or inaccurate for [the furnisher] to report plaintiff's delinquent debts. Because plaintiff's debts have not been discharged, [the furnisher] had no obligation to reference plaintiff's bankruptcy proceeding.” Id. at *3-4.

This decision is wholly consistent with the Bankruptcy Code. A discharge is not entered until all plan payments have been satisfied. If the debtor fails to satisfy the payments, the case could be dismissed and in that case, the original debt would not be discharged. It is consistent then that the furnisher's reporting is not inaccurate.

More recently, in Biggs v. Experian Info. Solutions, Inc., 2016 U.S. Dist. LEXIS 130742 (N.D. Cal., Sept. 22, 2016) another recent case out of the Northern District of California addressing this issue, the district court stated:

While the court acknowledges that “[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan” and preclude “a creditor from asserting, after confirmation, any other interest than that provided for it in the confirmed plan,” confirmation of a reorganization plan cannot be equated with a bankruptcy discharge, mainly because not every confirmation ultimately results in a discharge. The bankruptcy court may discharge the trustee only after the debtor “complies with his obligations under the confirmed plan and makes all of the required payments”; if that occurs, the debtor obtains an injunction against creditors' ability to proceed against him or her personally. Many debtors, however, fail to complete a Chapter 13 plan successfully, often because they cannot make payments on time. Recognizing this, the Bankruptcy Code permits debtors who fail to complete their plans to convert their Chapter 13 case to a case under a different chapter, or dismiss their case entirely … . But importantly, upon dismissal or conversion of a case, a debtor loses any benefits promised in exchange for the successful completion of the plan,” such as a discharge injunction. This observation is especially pertinent here since documents subject to judicial notice reveal that Plaintiff was at one time facing the possible dismissal of her Chapter 13 case because she failed to make payments according to the § 1327 plan.

In short, there are still several scenarios that may ensue even after a reorganization plan is confirmed, including at least one that leaves all pre-bankruptcy debts … in place.

(Internal citations and quotations omitted); see also Mestayer v. Experian Info Solutions, Inc., 2016 U.S. Dist. LEXIS 19265 (N.D. Cal., Feb. 17, 2016) (dismissing an FCRA case where the plaintiff challenged the pre-discharging credit reporting as a FCRA violation).

It is unknown how other circuits will come out on this issue. But, based on the fluidity of the law in the area of consumer protection, the courts likely will have differing opinions on this issue.

Best Practices

Even in these uncertain times, you can avoid liability or litigation by engaging in these practices:

• Stop all credit reporting on a debt during the pendency of the Chapter 13 case. This is the easiest way to avoid liability.
• Make sure to follow the CDIA guidelines and Metro-2 Codes whenever reporting a debt. Check and double check the information that is available about the debtor's debt and re-confirm that the reporting is correct.
• Have procedures (and more procedures) in place to make sure that correct codes are being used and that guidelines are being followed (see second item above).
• File objections to the debtor's Chapter 13 where necessary. There may be instances where this is too burdensome or not cost efficient, but there should be some process by which you examine this issue. If the debt is important enough to report, it may be worth it to object to the plan if grounds to do so exist.
• Adjust the credit reporting for the debt according to the new Chapter 13 plan, if feasible.
• Actively monitor the debtor's Chapter 13 case.

*****
Amy Drushal and Lara Roeske Fernandez are shareholders at Trenam Law in Tampa, FL, practicing in the Bankruptcy, Creditors' Rights & Insolvency Practice. Drushal can be reached at [email protected] and Fernandez at [email protected].