According to a court-appointed auditor, Capital One has wrongfully pursued debt collection from more than 15,500 borrowers whose obligations to repay the finance giant were waived by a bankruptcy judge. Personal bankruptcy protection legally dismisses a South Carolina borrower's loans and debts, making it illegal for creditors and banks to try to collect any previously owed payments.

One woman, a 35-year-old waitress, was sued by the company for her credit card debt even after her Chapter 7 bankruptcy filing was finalized. She sued Capital One for ignoring bankruptcy law, a lawsuit that the firm unsuccessfully tried to have dismissed. More than 800 other borrowers have filed similar lawsuits against Capital One after the lender tried to collect payments from them despite having filed for bankruptcy. The company agreed to reimburse around 130 such individuals for legal costs, but has yet to admit to any wrongdoing.

Earlier in 2011, Capital One requested that another lawsuit against it be thrown out. The lawsuit, filed by a former borrower, alleged that Capital One attempted to collect $43,396.59 in debt that was legally expunged by a completed bankruptcy case. The judge rejected the request, explaining that he wanted proof that the collection attempts were made in error and not an attempt to deceive.

While a spokesperson for Capital One stressed that company policy is not to pursue discharged debt, some have suggested that the lender's attempt to recover such money is intentional. In response to the accusations against it, Capital One has agreed to hand over internal records containing data about bankruptcy filings and will be supervised by a court-appointed monitor until a complete audit is performed.

Consumers who have to file for personal bankruptcy should not be deceived or intimidated by large financial institutions trying to collect on discharged debt.

Source: Wall Street Journal, "Debts Go Bad, Then It Gets Worse," Jessica Silver-Greenberg, Dec. 23, 2011