One of the primary advantages of either Chapter 7 or Chapter 13 bankruptcy is that otherwise crippling debts -- such as credit card debt -- can be eliminated. Accordingly, a person who files for either Chapter 7 or Chapter 13 under the United States Bankruptcy Code not only gets a fresh financial start, but also sees the door on debt collection efforts effectively closed.

Interestingly enough, one of the nation's larger banks is now facing claims that it has attempted to collect upon debts that were previously discharged in either Chapter 7 or Chapter 13 proceedings.

According to a recent report filed by a court-appointed auditor, Capital One -- the nation's 10th largest bank known for its "What's in Your Wallet" credit card campaign -- stands accused of trying to collect upon at least 15,500 "erroneous claims."

The investigation into Capital One began back in 2008 after a U.S. bankruptcy trustee in Massachusetts became suspicious when the company tried to collect upon a $5,542.50 debt that had been discharged in bankruptcy court 14 years earlier.

Here, the bankruptcy trustee ultimately determined that Capital One attempted to collect upon debts discharged via either Chapter 7 or Chapter 13 roughly 5,600 times and that these wrongful debt collection efforts could be attributed directly to the bank's failure to adequately track bankruptcy filings by cardholders.

While Capital One disputed that it had engaged it any type of malfeasance, it did consent to turning over internal records outlining over 2 million bankruptcy court claims between 2005 to 2010 to an auditor, and to undergoing supervision from a court-appointed monitor until the auditor's work is completed.

As previously stated, the auditor has uncovered 15,500 wrongful collection efforts thus far. In fact, over 800 of these borrowers have taken some sort of legal action against Capital One, likely seeking damages for attorney fees and other legal costs incurred seeking to have the collection efforts dismissed.

Interestingly, Capital One has agreed to reimburse at least 130 of these former borrowers but maintains that it is following the law regarding collections.

Stay tuned for further developments from our Phoenix bankruptcy blog ...

If you would like to learn more about Chapter 7 bankruptcy or Chapter 13 bankruptcy, take the time to speak with an experienced legal or financial professional.

The following post is for informational purposes only and is not to be construed as legal advice.

Source:

The Wall Street Journal, "Debts go bad, then it gets worse" Dec. 23, 2011