What are the correct procedures for reporting accounts included in bankruptcy, and how do FCRA and Metro 2® guidelines shape these requirements?
Reporting accounts included in bankruptcy is a critical responsibility for data furnishers. Accurate and compliant reporting ensures that consumer credit files reflect the true status of obligations, protects consumers’ rights, and helps organizations avoid regulatory risk. Both the Fair Credit Reporting Act (FCRA) and Metro 2® guidelines provide detailed instructions for handling these complex scenarios.
Definitions and Context
When a consumer files for bankruptcy, certain debts may be discharged, reaffirmed, or excluded from the bankruptcy. The way these accounts are reported to consumer reporting agencies (CRAs) has a significant impact on the consumer’s credit profile and legal standing. The Metro 2® format, the industry standard for credit reporting, includes specific fields and codes for bankruptcy reporting, such as Consumer Information Indicators (CIIs) and Account Status Codes.
Step-by-Step Reporting Standards
1. Identify the Bankruptcy Chapter and Borrower Status
- All Borrowers Filed: If all borrowers on an account file for bankruptcy (e.g., Chapter 7 or 13), report the appropriate CII (e.g., A for Chapter 7 petition, D for Chapter 13 petition) and maintain the account status as of the petition date.
- One Borrower Filed: If only one borrower files, report the CII for the filer and continue normal reporting for the non-filer. Authorized users (ECOA Code 3) should be deleted from accounts included in bankruptcy, as they are not contractually liable.
2. Use the Correct Consumer Information Indicator (CII)
- Petition Filed: Use CII A, B, C, or D to indicate a bankruptcy petition, depending on the chapter.
- Discharged: Use CII E, F, G, or H when the bankruptcy is discharged.
- Reaffirmation: Use CII R for reaffirmed debts, and V if the reaffirmation is rescinded.
- Removal: Use CII Q to remove a previously reported bankruptcy indicator if the case is closed, terminated, or dismissed without discharge.
3. Set the Appropriate Account Status and Payment History
- Maintain the account status as of the bankruptcy petition date throughout the process.
- Use the Payment History Profile to reflect the account’s status before, during, and after bankruptcy, using “D” to indicate months protected by the bankruptcy stay.
4. Update Key Dates and Fields
- Date of Account Information: Use the current month’s date for each reporting period.
- Date of First Delinquency: If the account was current at the time of bankruptcy, report the bankruptcy petition date. If delinquent, report the date of the first 30-day delinquency that led to the bankruptcy.
- Date Closed: For paid or discharged accounts, report the date the account was closed or discharged.
5. Special Scenarios
- Reaffirmed Debts: Report a new tradeline for the reaffirmed portion, using CII R.
- Multiple Bankruptcies: Follow the hierarchy for each borrower and update CIIs as the case progresses.
- Voluntary Surrender or Redemption: Use Account Status 95 (Voluntary Surrender) or 13 (Paid), with the appropriate CII.
Compliance Requirements
The FCRA requires data furnishers to report accurate and complete information, including the status of accounts in bankruptcy. Failure to update accounts promptly or to use the correct codes can result in consumer harm and regulatory penalties. Metro 2® guidelines (see FAQs 23–32, 27–28, and Exhibit 11 in the CRRG) provide the technical framework for compliant reporting.
Impact on Consumers
Accurate bankruptcy reporting ensures that discharged debts are not pursued or misrepresented, and that consumers’ credit files reflect their true legal obligations. Incorrect reporting can lead to collection attempts on discharged debts, credit denials, or legal disputes.
Conclusion
Reporting accounts included in bankruptcy requires careful attention to FCRA and Metro 2® guidelines. By following the correct procedures—using the right CIIs, account statuses, and dates—data furnishers protect both consumers and their organizations. Regular training and review of internal policies are essential to maintain compliance in this complex area of credit reporting.