Bankruptcy, Mortgage Companies, Your Credit Report Code Q
On your after-bankruptcy credit report, your mortgage is the account most likely to be wrong. What the mortgage companies do is far worse than HSBC (see my Nov 22, 2010 blog). HSBC just parks your late status and doesn’t update showing bankruptcy. The mortgage companies often update every month, saying you are late and getting later.
This leads me to two questions. Why are they doing this? And how?
The credit bureaus promised the judge in the Terri White class action they wouldn’t allow this. They promised to block creditors from updating late accounts after bankruptcy. (The exceptions are things the bankruptcy doesn’t clear up–like child support and taxes.)
So how are they getting away with it?
The answer is in the credit reporting instruction manual, published by the three credit bureaus. The manual, called Metro 2, includes about a dozen codes for bankruptcies. Chapter 7, chapter 13, discharged, dismissed.
One of those codes, Code Q, means ignore the bankruptcy. We’re seeing mortgage companies report a code Q–ignore the bankruptcy–to the credit bureaus. And then they start reporting people late again. The credit bureaus are using that code Q as their reason (or excuse) to let the mortgage companies keep up late reporting on debts that were cleaned up in the bankruptcy.
But why? It doesn’t make sense. I can understand HSBC parking a three thousand dollar credit card on your credit report. Three or four years after the bankruptcy, especially if you’ve lost contact with your lawyer, you might go on and pay it to clear up your credit.
But nobody can afford to pay a $100,000 mortgage to fix their credit. Can they? (Recently I had a client call Bank of America to complain about a mortgage still showing a past due balance after bankruptcy. And Bank of America told her, “now that the bankruptcy is over you still have to pay.”)
So maybe they think they can hammer people into making payments when they don’t have to, just by continuing to hit their credit. (Even if only one person out of ten thousand does it, they’d come out ahead, since it basically doesn’t cost them anything. Unless they get sued for it)
I’ve sued on three of these cases so far–got the after-bankruptcy credit report fixed and got people a little money. My clients were happy to settle for that.
I have another one of these cases going now–and my client is really hacked at her mortgage company. (She works in the finance industry and knows how much this hurts.) So I hope we can keep the case going a little longer–long enough to make the mortgage companies explain what they think they are doing.
When I find out, I’ll post it here.