Whose Second Chance?

How discharged debts can be revived

Some of the country's largest financial firms have been accused of harassing consumers over debts that courts have canceled. Troy Norton, 84, a retired prison guard who lives in Bismarck, Ark., claims in a lawsuit filed in June in U.S. Bankruptcy Court in Hot Springs that he was a victim of improper collection attempts by Bank of America Corp. (BA ) and two collection agencies. He obtained a discharge of certain debts in June, 2006, after medical bills prompted him to seek Chapter 7 protection. Court documents show that he received eight collection letters from the bank on credit-card debt of $4,218 that a judge had canceled.

In a July motion to have the case dismissed, Bank of America denied acting unlawfully. A spokeswoman declined to discuss the suit, which is pending.

Some debtors end up in bankruptcy a second time, and some creditors use this as an opportunity to seek payment on discharged debt. Rita Childers, 76, thought she had left behind an $855 bill owed to GE Money Bank, a unit of General Electric's (GE ) finance division, when the account was discharged in a Chapter 7 bankruptcy she filed in 2005. The former real estate agent in Klamath Falls, Ore., had quit her $30,000-a-year job to care for her husband, who suffers from Alzheimer's. Social Security and his veteran's pension didn't cover their bills.

After the Chapter 7 case, Childers fell behind again and filed under Chapter 13, which allows debtors to repay creditors over time. GE Money had transferred the account to a debt collector that filed new claims in the Chapter 13 to recoup the canceled $855 debt. In April, Childers sued GE Money, which then withdrew the claim, citing a paperwork mistake. In an e-mail, GE Money said it tries "to avoid these errors and fixes them if they occur."

By Robert Berner

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