Credit Repair

The Federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" (CRA). Most CRAs are credit bureaus that gather and sell information about you -- such as if you pay your bills on time or have filed bankruptcy -- to creditors, employers, landlords, and other businesses.

There are several steps involved in repairing your credit after bankruptcy or in lieu of bankruptcy. The first step is to get a copy of your credit report. Once you have obtained a copy of your credit report, the following steps can be taken to begin repairing your credit:

You can dispute inaccurate information with the Credit Reporting Agency. If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its findings to the CRA. (The source also must advise national CRAs -- to which it has provided the data -- of any error.) The CRA must give you a written report of the investigation, and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report be notified of the change.

Inaccurate information must be corrected or deleted. A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source.

You can dispute inaccurate items with the source of the information. If you tell anyone -- such as a creditor who reports to a CRA -- that you dispute an item, they may not then report the information to a CRA without including a notice of your dispute. In addition, once you've notified the source of the error in writing, it may not continue to report the information if it is, in fact, an error.

Outdated information may not be reported. In most cases, a CRA may not report negative information that is more than seven years old; ten years for bankruptcies.

Reference: Federal Trade Commission, "A summary of Your Rights Under the Fair Credit Reporting Act."

 

Credit Repair: Self Help May Be Best

You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:
 

·                          “Credit problems? No problem!” 

·                          “We can erase your bad credit — 100% guaranteed.” 

·                          “Create a new credit identity — legally.” 

·                          “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”
 

Do yourself a favor and save some money, too. Don’t believe these statements. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report.
This brochure explains how you can improve your creditworthiness and gives legitimate resources for low or no-cost help.
 

The Scam

Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can’t deliver. After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money.
 

The Warning Signs

If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:
 

·                          companies that want you to pay for credit repair services before they provide any services.  

·                          companies that do not tell you your legal rights and what you can do for yourself for free. 

·                          companies that recommend that you not contact a credit reporting company directly. 

companies that suggest that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
 

·                          companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.
 

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.
 

The Truth

No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):
 

·                          You’re entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
 

·                          Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report, at your request, once every 12 months.
The three companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. For more information, see Your Access to Free Credit Reports at ftc.gov/credit.
Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.
 

You can dispute mistakes or outdated items for free. Under the FCRA, both the consumer reporting company and the information provider (that is, the person,

·                          company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.
 

STEP ONE
Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Your letter may look something like the one on page 6. Send your letter by certified mail, “return receipt requested,” so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider.

If you request, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.
 

STEP TWO
Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct – that is, if the information is found to be inaccurate – the information provider may not report it again.

For more information, see How to Dispute Credit Report Errors at ftc.gov/credit.

 

Reporting Accurate Negative Information

When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

For more information, see Building a Better Credit Report at ftc.gov/credit.

The Credit Repair Organizations Act

By law, credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before you sign anything. The law contains specific protections for you. For example, a credit repair company cannot:

·                          make false claims about their services 

·                          charge you until they have completed the promised services 

·                          perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees
 

Your contract must specify:

·                          the payment terms for services, including their total cost 

·                          a detailed description of the services to be performed 

·                          how long it will take to achieve the results 

·                          any guarantees they offer 

·                          the company’s name and business address
 

Have You Been Victimized?

Many states have laws regulating credit repair companies. State law enforcement

officials may be helpful if you’ve lost money to credit repair scams.

If you’ve had a problem with a credit repair company, don’t be embarrassed to report it. While you may fear that contacting the government will only make your problems worse, remember that laws are in place to protect you. Contact your local consumer affairs office or your state Attorney General (AGs). Many AGs have toll-free consumer hotlines. Check the Blue Pages of your telephone directory for the phone number or check www.naag.org for a list of state Attorneys General.
 

Need Help? Don’t Despair

Just because you have a poor credit report doesn’t mean you won’t be able to get credit. Creditors set their own credit-granting standards and not all of them look at your credit history the same way. Some may look only at more recent years to evaluate you for credit, and they may grant credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.

If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

If you are considering filing for bankruptcy, you should know about one major change to the bankruptcy laws: As of October 17, 2005, you must get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

For more information, see Knee Deep in Debt and Fiscal Fitness: Choosing a Credit Counselor at ftc.gov/credit.

 

Do-It-Yourself Check-Up

Even if you don’t have a poor credit history, some financial advisors and consumer advocates suggest you review your credit report periodically
 

·                          because the information it contains affects whether you can get a loan or insurance — and how much you will have to pay for it.  

·                          to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.  

·                          to help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

 

Sample Dispute Letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,

 

Your name
 

Enclosures: (List what you are enclosing)

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Debt Counseling Tips

Be a savvy consumer of debt counseling or debt management programs. It’s an unfortunate truth that not everyone offering to help you get control of your finances has your best interest (as opposed to their own) at heart. Approach Debt Consolidation Loans with Skepticism While a loan to consolidate all of your debt into a single obligation is appealing and may have a lower interest rate than credit card interest rates, make sure that you can really repay that amount. Understand clearly the terms, including the interest rate on the loan. It may be that even lowering the interest rate does not make your present debts manageable, but just postpones the day of reckoning. Find out whether the loan will pay off over the life of the loan, or whether you will owe a "balloon" lump sum payment at the end. For many borrowers, balloon payments are just an invitation to another loan, and you never get free of this debt! Think Twice about Home Equity Loans If you can't pay your present unsecured debts, all your creditor can do is sue you and try to collect on the judgment. If you can't pay your home equity loan, you may lose your house in foreclosure. Most states provide a bankruptcy exemption that protects a given amount of equity in your home and puts that equity beyond the reach of your creditors. If you voluntarily use that equity to satisfy a creditor, the exemption no longer protects your home. Understand the Program If you participate in a program where a service negotiates with your creditors or makes payments on your debts for you, understand whether the service promises to lower the amount you owe or the interest rate you pay, or just promises to lower the payments you make every month, without significantly changing your obligation. Know what happens if a creditor won't negotiate. Make sure the program deals with all your debt. Some debt counselors confine themselves to dealing with your unsecured commercial creditors, excluding your obligations for child support or unpaid taxes. In effect, they ignore the debts that won't go away, while channeling your money to creditors whose claims could be jettisoned in bankruptcy. Don't Overpay There are several debt management programs with modest cost to you, the client. Approach for-profit or fee-based services with caution and make sure that the service is worth what it costs. Make sure that you don't worsen your situation by enlisting others to help with debt management. While it is comforting to have an ally in your struggle, make sure that their help has your best interest at heart.

Credit Counseling Scams

A reputable credit counseling agency can help you set up a repayment program with your creditors and teach you better money management techniques to avoid debt in the future. But some credit counseling services take advantage of people who are financially vulnerable, so proceed cautiously. The Federal Trade Commission Act prohibits “unfair or deceptive acts or practices” of credit repair and counseling agencies. Some states also have laws that make it illegal for credit service organizations to claim to be able to improve credit ratings. And in some states, credit counseling services must register with the state Attorney General’s office and get a surety bond to do business. Voluntary Certification and Accreditation The National Foundation for Credit Counseling (“NFCC”) is an independent not-for-profit organization that sets voluntary standards for credit counseling agencies. The NFCC Council on Accreditation (“COA”) accredits over 4,000 credit counseling programs that meet NFCC standards. In order to be accredited by the NFCC, a credit counseling agency must be recognized as non-profit by the IRS and have the proper local business licenses. To earn NFCC certification, a credit counseling program must also use adequate checks and balances to protect consumers, including: Auditing operating and trust accounts every year Offering consumer education programs Providing detailed reviews of consumers’ income and debts, and an assessment of how each consumer got into financial trouble, with a written action plan for reducing debt Disbursing funds to creditors at least twice a month, or sooner in emergencies Giving clients a financial statement at least once every three months The Association of Independent Consumer Credit Counseling Agencies (“AICCCA”) is another national organization with similar standards. You’ll want to think twice before signing up with a credit counseling agency that doesn’t belong to either of these voluntary organizations. Warning Signs What should tip you off that you may be dealing with a less-than-reputable program? Watch out for illegal fees, sometimes disguised as “contributions.” If the setup fees or monthly charges are very high, they can wipe out any gain you may have made against reduced finance charges, and you’d be better off negotiating directly with your creditors. Another warning sign can be outrageous claims to instantly repair your credit rating. Credit rebuilding is a gradual process, and it’s illegal to attempt to change your credit history by constructing a new, false identity. You should also beware of advance fee loan scams, where you’re asked to fork over money to get a promised loan. Under the FTC’s Telemarketing Sales Rule, no one can legitimately ask you to pay until you actually receive a loan or credit. So be skeptical of any debt consolidation loan, get all the details in writing, and don’t give your credit card, bank account or Social Security information over the phone or on the Internet. Educate Yourself The best way to protect yourself against unscrupulous credit counselors is to: Check out the program’s reputation with your state Attorney General and local Better Business Bureau, and find out how long they’ve been in business Confirm with your creditors ahead of time that they will work with that particular company Understand exactly what services are offered, and whether those services address all of your debts Get the specifics of any monthly fees, and find out whether you’ll still be obligated to pay those fees whether or not you continue to participate in the program Get all promises in writing Read your written agreement carefully It’s a good idea to report unscrupulous tactics of any credit counseling services to the consumer protection division of your state Attorney General. You can also file a complaint by calling the Federal Trade Commission Consumer Response Center toll-free at 1-877-FTC-HELP (382-4357)or filling out the Federal Trade Commission Consumer Complaint Form online.</ P <> Once you’ve signed on with a credit counseling agency, it’s important to check regularly with your creditors to make sure your payments are reaching them. And taking advantage of the educational programs offered by credit counseling agencies can keep you from backsliding once you’ve begun working your way out of debt.

 

Correcting Errors on Credit Reports

Under the law, both the Consumer Reporting Agencies ("CRA") and the organization that provided the information to the agencies, such as a bank or credit card company, have responsibilities for correcting inaccurate or incomplete information in your report. To protect all your rights under the law, contact both the CRA (see Web links at end) and the information provider if you have a dispute. First, tell the CRA in writing what information you believe is inaccurate. Include copies (not originals) of documents that support your position. In addition to providing your name and address, your letter should identify each item in your report you dispute, state the facts and explain why you dispute the information and request deletion or correction. Send your letter by certified mail, return receipt requested, so you can document what the CRA received. Keep copies of your dispute letter and enclosures. CRAs must reinvestigate the item(s) in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the information provider. After the information provider receives notice of a dispute from the CRA, it must investigate, review all relevant information provided by the CRA and report the results to the CRA. If the information provider finds the disputed information to be inaccurate, it must notify all nationwide CRAs so that they can correct your file. Disputed information that cannot be verified must be deleted from your file. If your report contains inaccurate information, the CRA must correct it. If an item is incomplete, the CRA must complete it. For example, if your file showed that you were late making payments, but failed to show that you were no longer delinquent, the CRA must show that your payments are now current. If your file shows an account that belongs only to another person, the CRA must delete it. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If you request, the CRA must send notices of any correction to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes. If a reinvestigation does not resolve your dispute, ask the CRA to include your statement of the dispute in your file and in future reports. In addition to writing to the CRA, you should tell the creditor or other information provider in writing that you dispute an item. Be sure to include copies (not originals) of documents that support your position. Many providers specify an address for disputes. If the provider continues to report the disputed item to any CRA after receiving your notice, it must include a notice that you dispute the item. If you are correct — that is, if the information is not accurate — the information provider may not report it again.   Accurate Negative Information When negative information in your report is accurate, only the passage of time can assure its removal. Accurate negative information generally can stay on your report for seven years. There are certain exceptions: Bankruptcy information may be reported for 10 years. Credit information reported in response to an application for a job with a salary of more than $75,000 has no time limit. Information about criminal convictions has no time limit. Credit information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit. Default information concerning U.S. Government insured or guaranteed student loans can be reported for seven years after certain guarantor actions. Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.   Seven-Year Reporting Period With regard to any delinquent account placed for collection — internally or by referral to a third-party debt collector, whichever is earlier — charged to profit and loss, or subjected to any similar action, the seven-year period is calculated from the date of the delinquency that occurred immediately before the collection activity, charge to profit and loss or similar action. For example, assume that your payments on a loan were late in January, but that you caught up in February. You were late again in May, but caught up in July. You were again late in September, but did not catch up before the account was turned over to a collection agency in December. You made no more payments on the account, and it is charged to profit and loss in July of the following year. Under the FCRA, the January and May late payments each can be reported for seven years. The collection activity and the charge to profit and loss can be reported for seven years from the date of the September payment, which was the delinquency that occurred immediately before those activities. Adding Accounts to Your File Your credit file may not reflect all your credit accounts. Although most national department store and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to CRAs. Some travel, entertainment, gasoline card companies, local retailers and credit unions are among those creditors that don't. If you've been told that you were denied credit because of an "insufficient credit file" or "no credit file" and you have accounts with creditors that don't appear in your credit file, ask the CRA to add this information to future reports. Although they are not required to do so, many CRAs will add verifiable accounts for a fee. However, understand that if these creditors do not report to the CRA on a regular basis, the added items will not be updated in your file. You can file a complaint by calling the Federal Trade Commission Consumer Response Center toll-free at 1-877-FTC-HELP (382-4357)or filling out the Federal Trade Commission Consumer Complaint Form online. Three Largest National Credit Bureaus Equifax 1-800-685-1111 Experian 1-888-EXPERIAN (397-3742) Trans Union 1-800-916-8800

Getting Credit After Bankruptcy

You may worry that you’ll never get credit after bankruptcy, or that it’ll take years to re-establish your credit. Neither is true. Credit Cards Most credit card companies will allow you to keep their credit card for use after bankruptcy if you agree to reaffirm the balance on the card and enter into a new agreement after the bankruptcy filing. Most creditors want to avoid not being paid in bankruptcy, and also want your future business. In fact, many people who have just been through bankruptcy are frequently solicited for new cards! Getting New Credit After Bankruptcy In today’s competitive lending environment, credit is available to the recently bankrupt. It may be more expensive than before, and available with lower limits, but it will be offered. A secured credit card (one backed up by money in the bank) is usually available post-bankruptcy at lower rates than unsecured cards. Of course, you should use credit cautiously and pay on time. Buying A Home After Bankruptcy Studies show that 18-24 months after a bankruptcy, debtors can qualify for a loan on the same terms as if they hadn’t filed bankruptcy. The lender is more interested in your down payment, the stability of your income, and the relationship between the loan payments and your monthly income. Effect Of Bankruptcy On Your Credit Report Bankruptcy is no more harmful to your credit record than the financial facts that lead to the bankruptcy filing. Most debtors in bankruptcy proceedings, even those who have never missed a payment, couldn’t get new credit from a lender who looked at their financial condition. So the fact that there are no negatives on your credit report is only marginally meaningful. Bankruptcy at least makes the debt shown in the negative history unenforceable. Objectively, you’re a far better credit risk after bankruptcy than before. Subjectively, credit managers may not understand bankruptcy or look beyond its negative aspects. A bankruptcy isn’t going to remove the fact that you owed money to a creditor listed in your bankruptcy. Credit reporting agencies are within their rights in showing accurate history about your financial affairs. You’ll want to correct any errors on your credit and make sure that the bankruptcy discharge also shows on your credit report (so that creditors understand that those old creditors have no legal claim remaining).

Bank Account Seizures

Are you worried that someone who has a judgment against you will go after your bank account? There are rules anyone garnishing or seizing a bank account must follow, and things you can do ahead of time to make it less likely. To begin with, the debt collector must have a court judgment against you before he or she can get at your bank account. Obviously, it’s best to try to negotiate a payment plan instead of letting someone get a judgment against you. If you do end up with a court judgment against you, consider moving funds from your bank account. Type of Account Vulnerable A debt collector will be aiming at any bank accounts in your name only, or in the name of you and your spouse. Bank accounts in your name and the name of someone else other than your spouse will be more difficult for a debt collector to garnish or seize. Exempt Funds Even if the bank account is in just your name, there are some types of funds that are considered “exempt” from debt collection under state or federal law. The rationale behind these laws is to allow people to preserve the basic necessities for living. Although it varies by state, exempt funds would typically include: Most government benefits, including Social Security, unemployment insurance, veterans’ benefits and public assistance A percentage of your earned wages, which varies by state Alimony or child support payments, and other payments for the support of a dependent Proceeds of the sale of property which is exempt from collection, such as a homestead exemption Disability or unemployment benefits from your employer Workers’ compensation Retirement benefits, such as pension or annuity payments Life insurance benefits due to the death of an insured or for wrongful death claims Payments due to personal bodily injury, in an amount that varies by state In addition, many states allow debtors what’s called a “wildcard” exemption of $1,500 to $2,000 in property or cash to be used as the debtor sees fit. So if you are forced to divulge your assets in a post-judgment procedure (sometimes called “supplemental proceedings” or “citation to discover assets”), you’ll want to let the debt collector know at that point that the funds in a particular bank account are exempt either because of the type of funds they are or because they are your wildcard exemption. You’ll also want to write a letter to the bank ahead of time to let them know that all the funds in a particular account are exempt. Seizure Process When the bank receives notice from the debt collector, the bank must “freeze” any funds in your account that are not exempt from collection. That means you can’t withdraw the money or use it to pay checks you’ve written. If you’ve already written checks on the account and are in danger of “bouncing,” you’ll want to make alternate arrangements for payment on those checks. When you receive notice from the debt collector or bank that your account has been frozen, you’ll want to notify the bank and the debt collector in writing if the funds in the account are exempt. Ideally, you would be able to prove that all the funds in a particular bank account are exempt. If you have “commingled” exempt and non-exempt funds, it becomes more difficult to protect. If you know ahead of time that there will be a court judgment entered against you, it makes sense to keep the exempt funds in a separate account, and not commingle exempt and non-exempt funds. Many courts allow you a formal hearing to explain why the frozen funds shouldn’t be seized or garnished. If the notice of the seizure or garnishment of funds doesn’t detail the steps you must follow, call the clerk of the court where the judgment was entered and find out the appropriate process. There usually isn’t a lot of time to protest a bank account garnishment or seizure, so it’s best to move quickly. And the sooner you act, the sooner the exempt funds will again be available for your use. It’s important to provide detailed documentation that the funds in the account are from entirely exempt sources. For instance, you might provide: Bank deposit slips Paystubs Statements from government benefit agencies Statements from insurance companies Real estate closing statements Pension or annuity statements Bank account statements and registers Any other documentation you can find that traces the funds from an exempt source into that particular bank account It’s best to provide the detailed document to the debt collector and the court ahead of time, in as clear a manner as possible.

 

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