Repairing Credit after Litigation

You’re being sued as a result of things that are either happening now – or happened some time in the past. But things DO change. You will want to fix things eventually and move on to a better future. Here’s how you can get that started – starting while you’re still in litigation.

Life after Debt Litigation

You probably know that I am a big believer in the importance of filing a counterclaim. As I mention in the featured question section this month, having a counterclaim gives you some very important control over the lawsuit itself and whether you get sued or harassed again by the same, or a different debt collector. If you do not have a counterclaim, the debt collector is free to drop the case at will in most jurisdictions. Your counterclaim prevents this.

There is also another reason relating to your life after litigation: Repairing your credit after the lawsuit.

Holding the Collector in the Suit

Our Life after Litigation section here is related to the featured question: “How do you keep the debt collector from just dropping the case and selling your debt to someone else?”

If you’ve read my articles or watched some of my videos, you probably know that I am a big believer in filing a counterclaim. As I mention in the featured question section, having a counterclaim gives you some very important control over the lawsuit itself and whether you get sued or harassed again by the same, or a different debt collector.

Protect Your Credit Report

There is also another reason relating to your life after litigation. Let’s consider your credit report. You may not know it, but when a creditor or debt collector sells your debt to someone else, it should report that information on your credit report. That way, if the next company down the line reports you, it is clear that they are doing so on a debt that someone else previously owned. And this in turn prevents one “bad debt” from looking like several apparent bad debts. After reporting you initially and up to the point of charge off, the original creditor should not be adding information to your file. That is the right of the next person who obtains the debt. Another way of putting this is that only the person to whom the debt is currently owed has a right to report information about that debt.

Why is this important?

It’s important because if you force the debt collector to settle a debt as a dismissal “with prejudice,” you terminate the debt collector’s right to collect. You also end its right to report the debt as a debt. That is because it, and any subsequent owner of the debt, is bound by what is known as “res judicata” (or more commonly now called “collateral estoppel”). Basically what that means is that once a court has ruled on the validity of the debt – that ruling will apply no matter who later owns the debt.

What do you do with that?

Fair Credit Reporting Act

You may have heard of the Fair Credit Reporting Act, 15 U.S.C. Sec. 1681. This was a law initially designed to limit and reduce the abuses of the credit reporting agencies, which were running roughshod over consumer rights. In particular, the credit agencies would report false or disputed information which was damaging people in very real ways – and then ignore repeated requests to correct that information. The FCRA was an attempt to assert some kind of control over them. I will address this issue more fully some other time, but the law divides the reporting community into two groups: the agencies and “information suppliers.”

Debt Collectors Are Often Information Suppliers

The people who report debts to the credit reporting agencies are “information suppliers,” and while they have a legal duty to report that information truthfully, that duty is initially enforceable only by certain government agencies. In plain English – you can’t sue them for reporting information falsely. And, naturally, that is exactly what’s happening when you are falsely trashed in your report. But you do have a right.

Your Right against Information Suppliers

Your right against information suppliers is located in 15 U.S.C. Sec. 1681s-2(b). What this part of the law says is that:

1. In general

After receiving notice pursuant to section 1681i(a)(2) of this title of a dispute with regard to the completeness or accuracy of any information provided by a person to a consumer reporting agency, the person shall –

(A) conduct an investigation with respect to the disputed information;’

(B) review all relevant information provided by the consumer reporting agency pursuant to section 1681i(a)(2) of this title;

(D) If the investigation finds that the information is incomplete or inaccurate, report those results to all other consumer reporting agencies to which the person furnished the information and that compile and maintain files on consumers on a nationwide basis.

Your Rights under the FCRA

What this means in a practical sense is that if you win at trial and get the debt collector’s case dismissed, or if you force it to settle where its claims are dropped “with prejudice,” then you should consider following up with a request to the reporting agencies for your credit report. If the debt collector has reported you as owing, or if the original creditor has not reported the debt as sold, then you may want to file a dispute. It is the filing of the dispute that allows you to sue the information supplier for providing false information to the credit reporting agencies.

How it Works

Suppose you go through the litigation process and get the case dismissed with prejudice. Your next move might be to request a credit report from all the credit reporting agencies. Debt collectors do not necessarily provide information to all the agencies, and perhaps they provide different information to different agencies. In any event, get your report from each of them. Please check out this month’s scam report before you do this, however.

When you get the reports, you must read them carefully – do they reflect that the debt was sold? Has the debt collector filed reports saying that you still owe? If the answer to either or both of these questions is “yes,” then you can write to the credit reporting agency requesting that it reinvestigate and stating very specifically that you “dispute” the report and the debt. Don’t be coy about this – you get no points for style here – you need to dispute the report and insist on a correction.

This dispute is what triggers the responsibility of the credit reporting agency to conduct a reasonable “reinvestigation.” As part of this reinvestigation, the agency must ask the information supplier to investigate the information it is supplying. If the information supplier provides false information at this point, you can sue it under the Fair Credit Reporting Act as well as under “common law” (state law) theories like defamation. And this is where collateral estoppel comes back into play – because if they claim you owe the money even though they have dismissed the case with prejudice, they would be “estopped” from arguing that they were telling the truth if you sued them for defamation or false reports under the FCRA.

Sue the Credit Reporting Agencies?

I’ve never suggested that nonlawyers try to sue the credit reporting agencies. They’re hard to find and serve, hard to figure out and, at least at the last report I got, almost never give up. If you decide to go after the credit reporting agencies, you should strongly consider hiring a lawyer.

Repairing Credit after Debt Litigation