When a consumer files for bankruptcy, certain accounts may be either discharged (legally forgiven) or settled through a bankruptcy plan. Reporting these accounts requires care to ensure accuracy, transparency, and compliance with the Fair Credit Reporting Act (FCRA). Inaccurate reporting of bankruptcy accounts is a common source of consumer disputes and regulatory scrutiny.
Types of Bankruptcy Resolutions
- Chapter 7 (Liquidation): Most debts are discharged, meaning the consumer is no longer legally obligated to pay them.
- Chapter 13 (Repayment Plan): Debts may be partially repaid over 3–5 years, with the remainder discharged once the plan is completed.
- Settled in Bankruptcy: The creditor receives less than the full balance through the court process, but the obligation is considered satisfied.
Steps for Reporting Bankruptcy-Settled Accounts
1. Update the Account Status
Accounts discharged or settled in bankruptcy should be reported with one of these statuses:
- 61 – Account paid in full, was a voluntary surrender
- 63 – Account paid in full, was a charge-off
- 64 – Account paid in full, was a foreclosure
- 97 – Included in bankruptcy
The correct code depends on how the account was finalized.
2. Use the Consumer Information Indicator
To reflect bankruptcy, Metro 2® requires a Consumer Information Indicator (CII):
- “A – Chapter 7 Bankruptcy”
- “D – Chapter 13 Bankruptcy”
- “E – Bankruptcy Petition Filed, Account Discharged”
This ensures that anyone reviewing the credit file understands the legal context.
3. Set Balance and Payment Amounts to Zero
Once the account is discharged or settled:
- Balance Amount = $0
- Scheduled Monthly Payment = $0
This confirms that the consumer has no further legal responsibility.
4. Maintain Accurate Historical Data
Do not erase prior delinquency or charge-off information. Payment history, delinquency, and the Date of First Delinquency (DOFD) must remain to ensure accurate credit aging.
FCRA Compliance Requirements
The FCRA requires that:
- Accounts discharged or settled in bankruptcy be reported accurately and without misleading implications
- Updates must be provided promptly and within the standard monthly reporting cycle
- Incorrect reporting (such as showing a balance due after discharge) may be considered a violation and lead to legal liability
Impact on the Consumer’s Credit Report
- Reflects Legal Debt Resolution
Proper reporting shows the consumer has no remaining obligation. - Negative But Time-Limited Impact
Bankruptcy records can remain on a credit report for 7 to 10 years, depending on the type of filing. - Transparency for Future Lenders
Clear coding ensures lenders understand the account was discharged through bankruptcy, not simply abandoned.
Conclusion
Accounts settled in bankruptcy must be reported with zero balances, accurate status codes, and the proper Consumer Information Indicator. By preserving payment history while reflecting the legal resolution, furnishers comply with the FCRA and give both consumers and lenders an accurate view of the account’s outcome.