Even worse, the challenges that earn you those badass ranks are NOT reset, meaning they can no longer be completed with that character. Skin / head customization unlocks that are earned by beating a certain mission or challenge are also gone forever. The only way to earn rank / skins again is to start all over, and even that doesn't guarantee that you won't be hit with the problem again down the road.
No one currently knows what triggers the glitch either, so you might want to start making backups of your save files if you're on the PC or PS3. It sounds like 360 users are currently screwed, as the game saves are stored on your profile.
An official comment from Gearbox:
Thanks for all the reports and specific details, folks. Our engineers are looking into this, and the information you've provided has proven to be a great resource while we investigate. At the moment, it seems to be a fairly rare issue and we'll keep you updated on when we resolve it.
This is a real shame. Anyone here experience this yet?