Apparently, banks are making big money by collecting on bankruptcy-discharged debts, based on outdated information on credit reports:

Legally, the issue is murky. Bankruptcy law bans efforts to collect discharged debt, but BusinessWeek says the courts are divided on whether a lender’s failure to update a credit report can be considered an improper attempt to collect. That ambiguity opens the door for lenders to pursue payment on obligations that in theory should be worthless.

Here’s what I don’t understand: If those obligations are worthless, then who gets the money collected on these phantom debts? If no one is legally entitled to that repayment, then isn’t the latter-day recipient — i.e., those collection agencies who bought the debt paper — essentially shaking people down for money by threatening to inflict black marks on a credit report? If anything, the paper acquirer would have a fraudulence claim against the financial institution that sold them the misidentified debts; but that would then be a business-to-business issue, and shouldn’t involve the individuals.

The whole system is shady. I can’t believe these databases can be so sloppily maintained. Every other aspect of the financial system — especially when it comes to corporate banking — are meticulously checked and re-checked for accuracy. But personal financial information is allowed to remain error-marred for years? I’m thinking there’s loads of culpability to go around here.