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FCRA Quick Hitter: Pulling Credit Score of Consumer in BK Not a Violation of Automatic Stay (Probably)

Here’s a handy dandy little decision for creditors/collectors to keep in mind.

When a consumer petitions for bankruptcy protection we all know (or should know) that collection efforts to that consumer must stop.  But can you still pull the consumer’s credit—assuming you otherwise have a permissible purpose–without violating the automatic stay?

According to one new case the answer is yes (!) but, watch out.

In In re Vargas, CASE NO. 19-50641-cag, CHAPTER 7, ADVERSARY NO. 19-05031-cag, 2020 Bankr. LEXIS 1646 (W.D. Tx. June 19, 2020) a consumer got her dander up when a creditor pulled her credit (hard pull) after she had petitioned for Chapter 7 protection. The debtor brought an adversary proceeding—like a mini lawsuit within a pending BK proceeding—against  the creditor seeking sanctions for violation of the automatic stay.

The Plaintiff/Debtor’s argument was a pretty good one. The automatic stay rules prohibit “any act to collect, assess, or recover a claim against debtor that arose before the commencement of the case.” And if the Defendant isn’t pulling credit to “assess” a claim on the debt then why is it pulling credit at all?

In assessing the issue, however, the Vargas court notes that Congress specifically allows credit reporting to continue through bankruptcy—assuming the right codes are used and all that—so why should credit pulling be treated any differently? The Defendant argued that pulling credit is not an act, standing alone, that is likely to lead to the collection of any debt. The Court seems to agree–although the reasoning is quite thin.  Nonetheless, noting that the Plaintiff/Debtor had failed to site any case law on the subject the court finds—without citing any case law of its own—that pulling credit does not violate the stay even if, as was apparently the case in Vargas, it was done as a first step in a collection effort.

Vargas is a great feather in a creditor’s cap but it is just one decision and not binding precedent. There’s a difference of opinion out there on this issue, to say the least. Be sure to reach out if you have questions about when it is, and is not, permissible to pull credit of a consumer in BK.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 177



About this Author

Eric Troutman Class Action Attorney
Of Counsel

Eric Troutman is one of the country’s prominent class action defense lawyers and is nationally recognized in Telephone Consumer Protection Act (TCPA) litigation and compliance. He has served as lead defense counsel in more than 70 national TCPA class actions and has litigated nearly a thousand individual TCPA cases in his role as national strategic litigation counsel for major banks and finance companies. He also helps industry participants build TCPA-compliant processes, policies, and systems.

Eric has built a national litigation practice based upon deep experience, rigorous...