A personal bankruptcy is supposed to cut borrowers loose from lenders and debt collectors, but Capital One Financial Corp. COF +0.24% —one of the nation's largest credit-card issuers—sometimes doesn't want to let go.
Leila Torres, a 35-year-old waitress who lives in Hawthorne, N.J., concluded her Chapter 7 bankruptcy case in 2009. She was stunned when she got a letter notifying her that Capital One was suing her for $4,266 in credit-card debt.
"I was trying to move on, and this whole thing has sucked me back into a nightmare," she says.
Capital One dropped the suit after Ms. Torres accused the company in a separate lawsuit filed in September of flouting bankruptcy law. Capital One asked a bankruptcy judge to throw out her suit, but he refused.
It wasn't the first time the company went after its customers for debts that had been snuffed out in bankruptcy, even though the practice is illegal. A court-appointed auditor concluded earlier this year that Capital One pursued 15,500 "erroneous claims" seeking money previously erased by a bankruptcy-court judge.
More than 800 of those borrowers have filed lawsuits or other legal actions against Capital One, the auditor said in a Dec. 6 court filing. Without admitting or denying wrongdoing, Capital One agreed to reimburse about 130 borrowers, lawyers and bankruptcy trustees for legal costs incurred trying to fend off Capital One.
A spokeswoman for the McLean, Va., company said: "It is our policy and practice not to collect on discharged debt."
In a court filing earlier this year, Capital One disputed the auditor's finding of 15,500 erroneous claims but didn't disclose what the company thought the correct tally should be.
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