ID Is a Bad IDea
have filed for bankruptcy, you may be the target of a credit repair
scheme called "file segregation." In this scheme, you
are promised a chance to hide unfavorable credit information by
establishing a new credit identity. That may sound perfect, especially
if youre afraid that you wont get any credit as long
as bankruptcy appears on your credit record.
"File segregation" is illegal. If you use it, you could
face fines or even a prison sentence.
A New Credit Identity
have filed for bankruptcy, you may receive a letter from a credit
repair company that warns you about your inability to get credit
cards, personal loans, or any other types of credit for 10 years.
For a fee, the company promises to help you hide your bankruptcy
and establish a new credit identity to use when you apply for credit.
These companies also make pitches in classified ads, on radio and
TV, and even over the Internet.
pay the fee and sign up for the service, you may be directed to
apply for an Employer Identification Number (EIN) from the Internal
Revenue Service (IRS). Typically, EINs which resemble Social
Security numbers are used by businesses to report financial
information to the IRS and the Social Security Administration.
you receive your EIN, the credit repair service will tell you to
use it in place of your Social Security number when you apply for
credit. Theyll also tell you to use a new mailing address
and some credit references.
you to establish a new credit identity, the credit repair service
is likely to make a variety of false claims. Listen carefully; these
false claims, along with the pitch for getting a new credit identity,
should alert you to the possibility of fraud. Youll probably
1: You will not be able to get credit for 10 years (the period of
time bankruptcy information may stay on your credit record).
Each creditor has its own criteria for granting credit. While one
may reject your application because of a bankruptcy, another may
grant you credit shortly after you filed for bankruptcy. And, given
a new reliable payment record, your chances of getting credit will
probably increase as time passes.
2: The company or "file segregation" program is affiliated
with the federal government.
The federal government does not support or work with companies that
offer such programs.
3: The "file segregation" program is legal.
It is a federal crime to make any false statements on a loan or
credit application. The credit repair company may advise you to
do just that. It is a federal crime to misrepresent your Social
Security number. It also is a federal crime to obtain an EIN from
the IRS under false pretenses. Further, you could be charged with
mail or wire fraud if you use the mail or the telephone to apply
for credit and provide false information. Worse yet, file segregation
likely would constitute civil fraud under many state laws.
Under The Credit Repair Organizations Act
law prohibits false claims about credit repair and makes it illegal
for these operations to charge you until they have performed their
services. It requires these companies to tell you about your legal
rights. Credit repair companies must provide this in a written contract
that also spells out just what services are to be performed, how
long it will take to achieve results, the total cost, and any guarantees
that are offered. Under the law, these contracts also must explain
that consumers have three days to cancel at no charge.
the law, you also have the right to sue in federal court. The law
allows you to seek either your actual losses or the amount you paid
the company whichever is more. You also can seek "punitive"
damages: sums of money to punish the company for violating the law.
The law also allows class actions in federal court: cases where
groups of consumers join together in one lawsuit. If you win, the
other side has to pay your attorneys fees.
states have laws regulating credit repair companies, and may be
helpful if youve lost money to credit repair scams.
had a problem with a credit repair company, report the company.
Contact your local consumer affairs office or your state attorney
general (AG). Many AGs have toll-free consumer hotlines. Check with
your local directory assistance.
may wish to contact the FTC. Although the Commission cannot resolve
individual credit problems for consumers, it can act against a company
if it sees a pattern of possible law violations. If you believe
a company has engaged in credit fraud, you can file a complaint
online, or send your complaint to: Consumer Response Center, Federal
Trade Commission, Washington, D.C. 20580.