Personal Finance Universe: Personal Finance Notebook: Bankruptcy was history -- until a $701 bill arrived

By Claudia Buck - Bee Staff Writer

Published 12:00 am PDT Tuesday, October 9, 2007
Story appeared in BUSINESS section, Page D4

Editor's note: Every Tuesday, The Bee's Personal Finance Notebook answers your questions about money matters. Assistant Business Editor Claudia Buck taps a roster of local and national experts for advice on navigating the often-confusing world of personal finance. At left is this week's reader query.

Q: More than 10 years ago, my husband and I had the misfortune of having to file for bankruptcy. We recently received a letter from a collection agency for $701.65 from a Citibank debt. This debt was listed in the bankruptcy proceedings. How can they send a demand for payment after 10 years?

-- Andrea W., Sacramento

A: They can send a demand, but you don't have to pay it.

According to the bankruptcy attorneys that we contacted, the notice you received may simply have been a mistake.

"It may just be a mixup in paperwork," said Jared Gaynor, a research lawyer with Younger & Hennecke LLP in Sacramento. "As long as the Citibank amount was a listed debt, they have no more personal liability for that (amount)."

When individuals file for bankruptcy protection, they're required to list all their creditors, including any collection agencies seeking payment for overdue bills.

If the bankruptcy petition is approved, the courts issue what's known as a "discharge," a court order declaring that you don't have to pay those listed debts -- or at least most of them. (Some debts can't be avoided, including child support, alimony, court fines, most taxes and student loans, and any personal-injury penalties incurred because of driving under the influence of drugs or alcohol.)

You could have received the notice about your old Citibank debt for a variety of reasons.

When filing a bankruptcy petition, if debtors aren't aware of all the credit agencies pursuing them or provide the wrong address for those they do know, it's possible the collection agency never gets notified once the debt is dismissed.

And it's not unusual for a credit card company, for instance, to bundle millions of dollars in bad debt and sell the package to another debt collection agency. Your debt may have been lumped into such a massive pile.

"I don't think it's intentional," said Sacramento bankruptcy attorney Scott CoBen. "For maybe $5,000, they buy a million dollars worth of uncollected debt and start sending out nasty letters, trying to recoup some of those outstanding debts."

Given the volume, he said, some errors aren't surprising.

Your next step? Contact the collection agency and send them a copy of your bankruptcy discharge so "they will stop bothering you," said CoBen.

It's not necessary to send the entire bankruptcy petition, just the single-page document that declares your debts have been discharged.

If you don't have a copy of your bankruptcy discharge notice, there are several ways to get one.

• Contact the court clerk where the original bankruptcy was filed. You'll probably be charged a small fee to obtain a copy.

• Most discharge orders can be accessed online at http://pacer.psc. uscourts.gov/. (Do not use "www" when accessing the site.)

The Public Access to Court Electronic Records (PACER) site provides computer access to federal appellate, district and bankruptcy court records. Users must set up a free account to acquire access and pay a per-page fee to download and copy documents.

A word to the wise: If you don't pay the 8 cents-a-page fee and owe PACER more than $10, the federal government may refer your unpaid balance to a debt collector.

CoBen also recommends that individuals who have gone through bankruptcy -- and anyone else, for that matter -- obtain a copy of their credit report and review it to ensure there are no errors. A free credit report can be obtained at www.annualcreditreport.com or by calling toll-free at (877) 322-8228.

You don't want any erroneous filings like that old Citibank debt to tarnish your efforts to clean up your financial history.

About the writer:

The Bee's Claudia Buck can be reached at (916) 321-1968 or cbuck@sacbee.com. Questions can also be mailed to: P.O. Box 15779 Sacramento, CA 95852.