The Court of Appeals for the Second Circuit has upheld a lower court’s ruling that a refusal to remove a charge-off notation from the credit report of an individual who had the debt discharged in bankruptcy is a matter that is not subject to an arbitration agreement in a cardholder agreement.
The ruling was first reported by Alan Kaplinsky of Ballard Spahr. A copy of the ruling, in the case of Anderson v. Credit One Bank, can be accessed here.
The plaintiff had a debt that was charged off by Credit One Bank and reported to the credit bureaus as such. The plaintiff subsequently filed for Chapter 7 bankruptcy protection and had the debt successfully discharged. The defendant refused to have the charge-off notation removed from the plaintiff’s credit report. The plaintiff then filed suit in bankruptcy court against the defendant, alleging the refusal was an attempt to “coerce” the plaintiff into repaying the debt. The defendant then sought to compel arbitration based on the cardholder agreement between Credit One and the plaintiff. The bankruptcy court ruled in favor of the plaintiff.
The decision was appealed to the District Court for the Southern District of New York, which upheld the ruling, and then appealed to the Second Circuit, which affirmed the lower court’s decision.
Said the Appeals Court:
Credit One argues that because the discharge injunction at issue here is based in a statute and executed by the court as a standard form using boilerplate language, the unique powers of the bankruptcy court are not implicated in any meaningful way. We disagree. Though the discharge injunction itself is statutory and thus a standard part of every bankruptcy proceeding, the bankruptcy court retains a unique expertise in interpreting its own injunctions and determining when they have been violated.
