District Court (Wis.) Says State Law’s Unique Receivership Program Similar to Bankruptcy Did Not Discharge Debt in a Way that Continued Reporting Constituted an “Inaccuracy” that Could Have Been Discovered on Re-investigation

Plaintiff claims that Defendants violated the FCRA by failing to conduct a reasonable investigation of the disputed Marine and World debts and refusing to correct the inaccurate information contained in her credit report. She contends that the state court’s dismissal of her action under Section 128.21 of the Wisconsin Statutes upon a finding that each creditor had been paid “100% of their claim” conclusively establishes that the information concerning debts owed to Marine and World, and included in her credit report by Experian, was as a factual matter inaccurate. Defendants’ failure to correct the information concerning those debts in the face of the state court’s order, she contends, violates several provisions of the FCRA.   Defendants, on the other hand, maintain that Plaintiff did not report the full amount of the debt she owed in the Chapter 128 plan and that Wis. Stat. § 128.21 proceedings do not and cannot discharge any unpaid obligation that was not included in and paid under the plan. Because the question of what impact a Chapter 128 plan has on Plaintiff’s contractual obligations is a legal question, Defendants assert that Plaintiff’s claims fail because the inaccuracy she asserts could not be resolved through a reasonable investigation as required by the FCRA. This is because, as noted above, to prevail on a claim against a furnisher or a CRA, the consumer has the burden to prove a “factual inaccuracy, rather than the existence of disputed legal questions.” Chiang, 595 F.3d at 38; see also Brill v. Trans Union LLC, No. 15-cv-300-slc, 2015 WL 9095103, at *3 (W.D. Wis. Dec. 16, 2015) (“[F]ederal courts consistently hold that the FCRA does not impose a duty on credit reporting agencies to verify the validity of the underlying debt when conducting reinvestigations.” (citing cases)). . . . Defendants’ argument is not without merit. Section 128.21 is a unique legislative provision that was enacted in the 1930s. It provides protection from legal collection procedures to a wage earner who files a petition which states the debtor is unable to pay current debts as they mature, but is able to pay them if they were amortized over the three-year period. The protection afforded by the statute, however, only applies to claims that arose prior to the proceeding and that are included in the amortization plan. Wis. Stat. § 128.21(2). The statute says nothing about interest or late charges that the creditor is entitled to assess under the loan agreement. As Defendants note, a state law cannot alter a valid contract without running afoul of the contracts clause of the United States Constitution, which prohibits the states from enacting laws that impair the obligations of contracts. U.S. Const. Article I, section 10, clause 1. This limitation seems to be reflected in subsection (7) of the statute which states in part that “[n]either the determination of the amount of any claim for the purposes of the plan, nor the acceptance of payments under the plan, shall affect the right of any creditor to litigate the creditor’s claim and obtain a judgment on the claim, or the right of the debtor to dispute the claim.” § 128.21(7). And unlike a bankruptcy proceeding, a Section 128.21 proceeding cannot result in a discharge of the borrower’s debt. The power to establish laws governing bankruptcy is one of Congress’ enumerated powers under the Constitution. U.S. Const., Article I, section 8, clause 4. No such power is delegated to the states.   On the other hand, there are also arguments in support of Plaintiff’s position. The value of amortizing one’s debts is significantly reduced if the creditors are not bound by the determination made by the court as to the amount of the debt they are to be paid, and interest and late charges continue to accrue even while payments are made. While state law may not impair the obligations of contracts, parties can agree to modifications. In this case, the notice to creditors specifically stated that “no additional interest will be accrued to the balances during the repayment of the plan.” ECF No. 34-2. The notice also warned that “if you do not respond to the meeting of creditors, it will be assumed that you agree with the claim as listed above.” Id. Although the record does not reflect that World received such a notice, Marine returned the claim form acknowledging that “the claim amount listed above is correct.” ECF No. 34-2. And the amortization plan was approved by the state court apparently without objection. Still, the statute tells creditors that neither the court’s determination of the amount of any claim, nor the acceptance of payments under the plan, affects the right of any creditor to litigate and obtain a judgment on the claim. Wis. Stat. § 128.21(7); see also Banks v. The Target Corp., 12-cv-731-bbc, 2013 WL 12233929 (W.D. Wis. May 21, 2017) (noting that the fact that plaintiff was making payments required by § 128.21 repayment plan did not make listing account “past due” inaccurate).  Taking all these matters into consideration, I conclude that the dispute in this case is not over a factual inaccuracy in Defendants’ reporting but rather a legal dispute regarding the impact the Chapter 128 proceeding had on Garland’s debt overall. In particular, the issue here is whether the completion of a § 128.21 plan constitutes a discharge of the entire debt between the debtor and creditor, including the discharge of interest or fees that accrue in accordance with an agreement between the parties or other debt not included in the plan. As a result, unless and until a proper tribunal concludes the Chapter 128 proceeding eliminated the debts in their entirety or that the plan precludes the accrual of post-filing interest and other penalties, Plaintiff cannot establish that the reported information is factually inaccurate. Accordingly, her claims fail as a matter of law.