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ChexSystems and Bankruptcy – How Are They Connected?

If you have gone through the bankruptcy process, you may have been able to erase most of your debts.  However, you may not be able to clear up all of your banking problems.  In fact, a bankruptcy discharge does not get you out of the ChexSystems database.

What is ChexSystems?

It is a national database used by more than 80% of banks and credit unions to keep track of who the financially irresponsible customers are.  Most of the time, a bank will report anyone who had their account ‘closed for cause’.  Usually, banks close accounts because the account holder racked up too many overdraft fees, misled the bank in some way, or committed some type of fraud.

Banks do not want risky people opening up accounts with them, so before you are approved for a new account, the bank will check to see if you are listed in ChexSystems.  If you are, your account will probably be denied.

How are ChexSystems and bankruptcy related?

Simply filing for bankruptcy will not land you in ChexSystems.  The only way you can get reported to ChexSystems is if your bank accuses you of wrongdoing.

If you are listed in ChexSystems, your name will stay there for 5 years.  You will not be deleted from the system just because you filed for bankruptcy, or were discharged from bankruptcy.  After all, your ChexSystems report contains accurate information about you and your behavior before you filed for bankruptcy.  Although your BK may be discharged, banks may still consider you a financial risk.

When you receive a discharge for either Chapter 7 or Chapter 13 bankruptcy, your unsecured debts are eliminated – including any outstanding overdraft charges that may have caused your bank to report you to ChexSystems.  You do not have to repay those fees to the bank, but you will still spend 5 years in ChexSystems.

Even though you may not be able to get your name taken out of ChexSystems, once you are discharged from bankruptcy, you need to deal with ChexSystems.  There are certain steps you can take to make it easier to open a new bank account.

What should you do?

Once you are officially discharged from bankruptcy, you need to formally request a copy of your ChexSystems report.  You can either do it online, or by mailing ChexSystems a letter.  Because ChexSystem operates under the Fair Credit Reporting Act (FCRA), they are required to send you a free copy of your report once a year.

Once you receive your report, you need to look at it carefully, and make sure that all of your accounts show a discharge instead of a balance due.  Your report should say, ‘$0.00 balance, discharged in bankruptcy’.  Once all of your discharge information is listed in your ChexSystems report, your name will remain in the database, but it will be much easier for you to open a new bank account.

However, if any of your bank accounts show a balance other than zero, you will need to dispute the report.  Because they are bound by the FCRA, ChexSystems is required to remove any false information from your report.

How do you file a dispute?

You will need to mail a letter to ChexSystems telling them that you have been discharged from bankruptcy, and that your report needs to be updated.  Along with your letter, you will also need to include copies of your discharge notice that your received from Bankruptcy Court.  Send everything Certified Mail, so that you can prove exactly when you sent it, and who at ChexSystems signed for it.

Once ChexSystems receives your letter, they have 30 days to contact the bank and verify that the account was discharged in bankruptcy.  If they do not, or if the bank still reports an outstanding balance, both are in violation of the FCRA.

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