District Court (Cal.) Finds that FCRA Plaintiff Failed to State a Claim for Report of Debt as it Passed Through Chapter 13

In Biggs v. Experian Information Solutions, Inc., 2016 WL 5235043, at *2–4 (N.D.Cal., 2016), Judge Davila dismissed a FCRA Plaintiff’s claim with leave to amend.

Here, Plaintiff alleges she filed for Chapter 13 bankruptcy protection on December 10, 2014, and that a plan was confirmed on March 21, 2015. Compl., Dkt. No. 1, at ¶ 5. Plaintiff then ordered a “three bureau” credit report on July 11, 2015, and “noticed several tradelines all reporting misleading and inaccurate balance and past due information,” which she disputed with each of the CRAs. Id. at ¶¶ 7, 8. She believes the CRAs communicated her dispute to the furnishers of the purportedly inaccurate information. Id. at ¶ 9. As to Bank of America, Plaintiff alleges it was reporting her account as “having a balance and past due balance owed and did not properly reflect the amount that was to be paid on the account pursuant to the Court Ordered terms of Plaintiff’s chapter 13 plan of financial reorganization.” Id. at ¶ 11.  Since there is no allegation or other qualifying evidence to show Plaintiff has received a bankruptcy discharge,¹ Bank of America argues that Plaintiff’s FCRA claim is deficient because it is not inaccurate for furnishers of credit information to report delinquencies or a balance owed during the pendency of a bankruptcy. As applied to the facts alleged by Plaintiff, Bank of America is correct. Courts in this district have held that the FCRA does not prohibit the accurate reporting of debts that were delinquent during the pendency of a bankruptcy action, even after those debts have been discharged, so long as the bankruptcy discharge is also reported if and when it occurs. See Mortimer v. Bank of America, N.A., No. C-12-01959 JCS, 2013 U.S. Dist. LEXIS 2993, at *16-18, 2013 WL 1501452 (N.D. Cal. Jan. 3, 2013); see also Mortimer v. JP Morgan Chase Bank, N.A., No. C 12-1936 CW, 2012 U.S. Dist. LEXIS 108576, at *9, 2012 WL 3155563 (N.D. Cal. Aug. 2, 2012) (“While it might be good policy in light of the goals of bankruptcy protection to bar reporting of late payments while a bankruptcy petition is pending, neither the bankruptcy code nor the FCRA does so.”); see also Giovanni v. Bank of America, N.A., No. C 12-02530 LB, 2012 U.S. Dist. LEXIS 178914, at *14-16, 2012 WL 6599681 (N.D. Cal. Dec. 18, 2012). Indeed, the import of these decisions is recognition that the mere filing of a voluntary bankruptcy petition does not erase or invalidate debts, nor does that act excuse the debtor from making timely payments on his or her outstanding accounts. See Mortimer, 2012 U.S. Dist. LEXIS 108576, at *9. If anything, the filing of a bankruptcy petition only imposes a limit on a creditor’s ability to collect on a debt. Id. But the debt and its delinquent status still exist, and it is not inaccurate or misleading to report that information to a CRA.  This remains true even after a reorganization plan is confirmed under 11 U.S.C. § 1327. While the court acknowledges that “[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan” (11 U.S.C. § 1327(a)), and preclude “a creditor from asserting, after confirmation, any other interest than that provided for it in the confirmed plan” (In re Pardee, 218 B.R. 916, 925 n.9 (9th Cir. B.A.P. 1998)), confirmation of a reorganization plan cannot be equated with a bankruptcy discharge, mainly because not every confirmation ultimately results in a discharge. The bankruptcy court may discharge the trustee only after the debtor “complies with his obligations under the confirmed plan and makes all of the required payments;” if that occurs, the debtor obtains an injunction against creditors’ ability to proceed against him or her personally. In re Blendheim, 803 F.3d 477, 487, 493 (9th Cir. 2015) (citing 11 U.S.C. § 350(a)). “Many debtors, however, fail to complete a Chapter 13 plan successfully, often because they cannot make payments on time.” Id. “Recognizing this, the Bankruptcy Code permits debtors who fail to complete their plans to convert their Chapter 13 case to a case under a different chapter, or dismiss their case entirely….But importantly, upon dismissal or conversion of a case, a debtor loses any benefits promised in exchange for the successful completion of the plan,” such as a discharge injunction. Id. This observation is especially pertinent here since documents subject to judicial notice reveal that Plaintiff was at one time facing the possible dismissal of her Chapter 13 case because she failed to make payments according to the § 1327 plan. Req. for Judicial Notice, Dkt. No. 16, at Ex. B.  In short, there are still several scenarios that may ensue even after a reorganization plan is confirmed, including at least one that leaves all pre-bankruptcy debts and their corresponding statuses in place. Consequently, this court finds that Bank of America cannot be held liable under § 1681s-2(b) based on solely on what is contained in the Complaint. Specifically, the first element of a FCRA claim is unsatisfied because Plaintiff has not plausibly alleged that Bank of America furnished an inaccurate or misleading account balance,² or that the past-due designation is similarly inaccurate or misleading because it somehow fails to account for her confirmed reorganization plan.   Plaintiff’s arguments against this conclusion are unpersuasive. First, Plaintiff argues without citation to authority that approval of a reorganization plan in bankruptcy “absolve[es] Plaintiff from any legal requirement to pay on the debts separate from the treatment under the terms of the chapter 13 plan.” Though this statement may be in reference to the binding provision of § 1327(a), speaking in terms of absolution is a step too far. Again, while § 1327(a) imparts a restraint on creditors’ ability to collect outside of the plan’s terms, it does not “absolve” or erase either the debt or the fact that payments are past due. The debt may still live on in its pre-bankruptcy status if the debtor fails to perform under the plan and causes the bankruptcy to be dismissed.   Second, Plaintiff compares her allegations to other cases involving a furnisher’s failure to report certain information as disputed, such as Wang v. Asset Acceptance LLC, No. C 09-04797 SI, 2010 U.S. Dist. LEXIS 91946, 2010 WL 2985503 (N.D. Cal. July 27, 2010), a furnisher’s failure to report a debt as discharged, such as Venugopal v. Digital Federal Credit Union, No. 5:12-CV-06067 EJD, 2013 U.S. Dist. LEXIS 43829, 2013 WL 1283436 (N.D. Cal. Mar. 27, 2013), and a furnisher’s reporting of inconsistent information some of which is negative to the debtor, such as Grantham v. Bank of America, N.A., No. CV12-1960 MEJ, 2012 U.S. Dist. LEXIS 167439, 2012 WL 5904729 (N.D. Cal. Nov. 26, 2012). These cases are inapposite because Plaintiff does not allege that Bank of America failed to report the debt as disputed or discharged in a manner similar to Wang and Venugopal, and does not identify inconsistent account information as was done in Grantham. Consequently, these cases do not assist Plaintiff here.   Third, Plaintiff suggests that neglecting to furnish the payment terms of a confirmed plan may lead a reviewer of Plaintiff’s credit report to conclude “that separate collection activity can occur due to the past-due outstanding balance that shows on the report.” She may be correct. But if such a conclusion is drawn, it is not because the information reported by Bank of America is inaccurate or misleading. As the court has explained, a dismissal of Plaintiff’s bankruptcy is still possible even with a confirmed plan. If that happens, separate collection efforts may in fact occur in the future.  Furthermore, it is worth noting that Plaintiff did not in any event allege facts sufficient to support her theory that Bank of America reported misleading or inaccurate information to the CRAs. Though she claims the information “did not properly reflect the amount that was to be paid on the account pursuant to the Court Ordered terms of Plaintiff’s chapter 13 plan of financial reorganization,” Plaintiff did not specify which terms of the plan contradict what was shown on her credit report. Addressing similar allegations, another member of this court found the plaintiff’s FCRA claim implausibly pled in Abbot v. Experian Information Solutions, Inc., No. 15-CV-05541-LHK, 2016 U.S. Dist. LEXIS 47397, at *13-14, 2016 WL 1365950 (N.D. Cal. Apr. 6, 2016). The Abbot court’s reasoning is equally applicable here and, as in that case, Plaintiff cannot correct pleading deficiencies with new facts inserted into her opposition to this motion.