Bank of America and JPMorgan Will Erase Zombie Debts From Your Credit Reports

Bank of America and JPMorgan Chase will be clearing consumers’ credit reports of “zombie debts” — outstanding debts that are still listed on a credit report despite being settled through bankruptcy — reports The New York Times. Theses credit report updates are to be completed within three months and will affect more than one million Americans.

JPMorgan Chase and Bank of America Clear Zombie Debts in Face of Lawsuits

This action is a response to lawsuits the banks currently face. According to the New York Times, Bank of America and JPMorgan are accused of “deliberately ignoring bankruptcy discharges to fetch more money when they sell off pools of bad debt to financial firms.” The suits also accuse the banks of eliciting payments for debts settled through bankruptcy by refusing to fix mistakes on credit reports.

“The complaint sets forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt,” said the judge presiding over the cases in July 2014. The judge has refused to dismiss the lawsuits at the banks’ requests.

In their defenses, the banks have said that they followed bankruptcy law. But, they agreed to perform an audit of debts still listed as outstanding despite being settled by bankruptcy and have these zombie debts cleared.

Consumers Can Get Second Chance After Bankruptcy

For former borrowers whose debts should have been cleared, this action will offer welcome relief from the black mark of bad credit and deliver the second chance that bankruptcy can promise.

Zombie debts listed on credit reports can limit a consumer’s borrowing options, making them an unattractive candidate for loans, credit cards or even bank accounts. If zombie debts show up in employee background checks, they can also limit the credit report owner’s employment prospects and job opportunities.

One woman who was plagued by zombie debts told the New York Times, “I lost job after job because of this.”

Read: Why Bankruptcy Could Keep You Unemployed Forever

Photo credit: Northfoto / Shutterstock.com 

This article originally appeared on GOBankingRates.com: Bank of America and JPMorgan Will Erase Zombie Debts From Your Credit Reports

This article by Elyssa Kirkham first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.