Federal lawmakers have drawn up a proposal that would kill "zombie" debts for credit card debt that's reported after it's been discharged through bankruptcy.

Several consumer advocacy groups are commending the U.S. senators who have drawn up the Consumer Reporting Fairness Act of 2015, which if it were to be passed, would force banks and other creditors to notify credit reporting agencies if a person's debt was canceled through bankruptcy.

The Act would help borrowers with inaccurate credit reports after bankruptcy, allowing them to sue banks and third-party debt buyers for damages.

The bill came after bankruptcy filers sued several large banks, accusing them of failing to remove poor marks for unpaid debts on their credit reports, even after the debt was legally discharged through bankruptcy.

Zombie Debts Hurt Credit Scores

According to the lawsuits, the "zombie" debts cause inaccurate and negative records that harm their credit scores, making it more difficult to rent an apartment or a house, get a job, and borrow money at low interest rates.

Some borrowers feel pressured to pay off old debts just so they can improve their credit scores, even though the debt was already discharged through bankruptcy. There is a long list of consumer advocacy groups that support the Consumer Reporting Fairness Act, including:

• Center for Responsible Lending
• National Consumer Law Center
• Consumer Action
• Consumers Union
• National Association for Consumer Advocates

A staff attorney from the National Consumer Law Center said that the practice of failing to update credit reports following bankruptcy harms consumers by making them look as if they are hopelessly in debt when they aren't.

Ed Boltz, the president of the National Association of Consumer Bankruptcy Attorneys said that the Act addresses a significant abuse that prevents people from realizing the fresh start that bankruptcy promises.

To learn more about the Consumer Reporting Fairness Act, contact a bankruptcy lawyer in our directory!