Some student loans may be discharged during bankruptcy, but not all, and one plaintiff’s attempt at asserting that a lender and credit reporting agency violated the Fair Credit Reporting Act because of how they handled his dispute was dismissed by a District Court judge in Illinois, who also ordered the plaintiff’s attorney to show cause why she should not be sanctioned for citing potentially non-existent cases in her filings.
The background: The case stems from a student loan account that the plaintiff opened in 2019 before filing for Chapter 7 bankruptcy in 2022. The plaintiff alleged that the loan was discharged in early 2023 and that, despite that discharge, the defendant credit reporting agency continued to report the account as open, delinquent, and past due, while also failing to note that it had been included in bankruptcy.
- The plaintiff disputed the debt multiple times, including submitting the bankruptcy discharge order. However, according to the complaint, the defendant responded by requesting documentation it had already received and continued to report the account as delinquent.
- Meanwhile, other credit reporting agencies reportedly reflected the account as closed or discharged, adding another layer of frustration that ultimately led to the lawsuit.
- At the center of the dispute was a critical assumption made by the plaintiff that the student loan had, in fact, been discharged through the bankruptcy.
The ruling: Judge Mary M. Rowland of the District Court for the Northern District of Illinois dismissed the FCRA claims with prejudice, concluding that the alleged inaccuracy was not actionable because it required a legal determination rather than a factual one. Specifically, whether the student loan was discharged in bankruptcy depends on an undue hardship finding, which must be made through a separate adversary proceeding.
- The bankruptcy discharge order itself even cautioned that “most debts are covered by the discharge, but not all,” explicitly noting that most student loans are not automatically discharged. The judge found no indication that the plaintiff had obtained the required undue hardship determination, making the status of the debt a legal question outside the scope of what a credit reporting agency is required or even permitted to resolve.
- Put more simply, Judge Rowland concluded that requiring the defendant to determine whether the debt was discharged would force it to “step into the court’s shoes,” which the FCRA does not require.
- The decision also included an unusual twist. The judge ordered the plaintiff’s counsel to appear and show cause why sanctions should not be imposed after citing potentially non-existent cases in briefing. The court noted concern that counsel may have “misled the Court” or failed to properly verify citations, raising broader questions about diligence and credibility in filings.
