The Fair Credit Reporting Act is a federal statute that puts you in charge of making sure your credit report is accurate. That duty does not devolve to the credit bureaus or to your lenders. It is your job to make sure that your credit report is free from errors. Worse yet, your job is made even more difficult because 80% of all credit reports have errors and half of them are enough to damage your score.
In this article I will explain how you can protect your credit especially if you have filed for bankruptcy. Under Chapter 7 or Chapter 13, then you are entitled to a financial “fresh start.” Your Bankruptcy Attorney probably discussed the differences between these two chapters of the Bankruptcy Code. Still, its highly unlikely that he discussed what credit reporting dangers you face after filing for bankruptcy. Without a clean credit report, you have a much lesser chance of getting your financial fresh start. We are going to take you on the right path…right now.
Chapter 7 Bankruptcy 101
In a nutshell, Chapter 7 is where a consumer just want out from under his debts. If the consumer meets certain requirements in Chapter 7, the consumer generally repays nothing to his creditors. He ultimately receives a Discharge and owes his creditors nothing. One exception to a Discharge, however, is “Reaffirmed Debts.” These are debts that the consumer has agreed with the creditor, should survive bankruptcy. For example, if the consumer has a car or a house that he wants to keep, he will have to reaffirm these debts and they will survive a bankruptcy discharge.
How credit reports are illegally damaged after a Chapter 7
- A collection item or a trade line is not reported as included in bankruptcy
We have seen quite a few of these cases. Sometimes debt collectors and creditors hate the idea of losing a debt in bankruptcy. Many courts have held that credit reporting is debt collection. So, if a debt collector or creditor refuses to include an item that should be reported as discharged in bankruptcy, they are breaking the law.
The problem with an item that should have been reported as discharged in bankruptcy but still showing as current, is that a creditor or potential creditor that reviews your credit report will assume that this that is still open and collectible. This is highly misleading to a user of your credit report.
- A reaffirmed debt is reported as discharged.
Many times, a consumer will want to keep his car or his home. In order to do that, they need to enter into a reaffirmation agreement that has to be approved by the bankruptcy court. The reaffirmation agreement is a contract between the consumer and the creditor that says that the creditor’s contract will survive the bankruptcy discharge.
If a debt that survives bankruptcy is reported as “included in bankruptcy”, it’s misleading to a third-party creditor who may look at the credit report. Moreover, a debt that is flagged as included or discharged in bankruptcy, may not reflect payments made by a consumer after he has filed for bankruptcy. Timely made payments make up 35% of your credit score. Each and every timely made payment on a debt, increases a credit score, albeit just a little at a time. Still if a debt that has survived bankruptcy is not reflect as such, your timely made payments will not be reflected and will not increase your credit score.
- A non-filing spouse is reported as having filed for bankruptcy.
Once a consumer files for bankruptcy, that notation appears in the Public Records section of his credit report. The initial damage caused by a bankruptcy filing can be devastating to a credit score.
Sometimes only one spouse files for bankruptcy because the other might have better credit and less demanding debt obligations. Many times, this works out to be a good strategy because it gives the couple a chance to still get credit. But, if both spouses are reported as having filed for bankruptcy, then the strategy goes out the window. This is illegal. Moral of the story: if your spouse filed for bankruptcy, it’s important that you periodically check your credit report to make sure that you are not reported as having filed bankruptcy as well.
Credit Traps in a Chapter 13 Bankruptcy
A Chapter 13 bankruptcy involves a consumer who has the ability to repay a certain percentage of his or her debts. The consumer, usually with the help of a bankruptcy attorney, identifies all of his or her creditors and the amounts that they are owed. The consumer then identifies his assets and income and commits to fund a plan for a period of between 3 to 5 years. This fund is used to repay creditors a certain percentage of what they are owed.
“Cram Down” is a phrase that no creditor in a Chapter 13 likes to hear. A cram down is when a balance owed to a creditor and the monthly payment are reduced in the consumer’s bankruptcy plan. Cram Downs happen with cars and other consumer goods. For example, suppose the consumer purchased a car for $30,000 and has a $600 monthly payment on it. But, if the car is only worth $15,000, the court will most likely approve a cram down of the debt to $15,000. Likewise, the Bankruptcy Court will reduce the monthly payment from $600 to say $300. Once the consumer’s bankruptcy plan is approved, all the consumer owes that creditor is $15,000 payable at the rate of $300 per month. At the end of his payment plan, the rest of the debt is discharged. Cram downs are part of many Chapter 13 Bankruptcy plans.
How credit reports are illegally damaged after a Chapter 13
- An crammed down account reported with the pre-crammed down debt and monthly payment.
We have seen a lot of this. A debt that has crammed down in the consumer’s bankruptcy plan, continues to be reported with the original balance and monthly payment. This is illegal. A bankruptcy plan that’s confirmed by the court is a new contract between the creditor in the consumer whether the creditor likes it or not. And even though it’s illegal, they’ll continue to report the pre-crammed down balance and monthly payment, thus illegally damaging the consumer’s credit score.
- Mortgage lenders and servicers that zero out the trade line after bankruptcy.
This is a big problem. Many large banks and servicers do not know how to properly credit report an account included in bankruptcy. Sometimes in an effort to avoid getting in trouble, they will simply change the trade line to report a zero balance due and merely state that the account is closed. This credit reporting technique is illegal and hurts the consumer. Because the consumer continues to make payments on the mortgage, but the lender fails to report those posts bankruptcy payments, the trade line becomes misleading. A reader of that trade line would not know that the consumer has faithfully continued to make his monthly payments on his mortgage. Every timely made payment raises a consumer’s credit score. Indeed, timely made payments make up 35% of the consumer’s credit score. So when mortgage servicer or bank refuses to report post-bankruptcy made payments, they are actually hurting the consumer’s credit score.
- Mortgage lenders misreporting short sales as foreclosures.
The Bible of the credit reporting industry is a book called the Credit Reporting Resource Guide (“CRRG”). The CRRG discusses how to handle foreclosures but has no reference to handling short sales. Consequently, people who sell their homes in the short sale many times find an erroneous foreclosure on the credit report. Foreclosures are very bad for the credit score.
In a typical short sale, the homeowner sells the home for less than is owed to the bank. The homeowner can only sell the home with the banks permission because the bank has a lien on the property. Usually the bank will agree to the sale so long as it gets most of the sale proceeds. Many times, the homeowner keeps current on the mortgage payments, so the home never goes into foreclosure. But alas, this does not stop the bank from reporting the transaction as a foreclosure. This is illegal and is extremely damaging to people’s credit reports.
- Collection items being reported is still open.
Once a consumer files for bankruptcy, collection items cannot be reported as open. Debt collectors are required to report their pre-bankruptcy filed collection items as “included in bankruptcy” and ultimately as “discharged in bankruptcy.” Otherwise, someone who reads the credit report might think that the collection item is still open and active.
Many smalltime debt collectors ignore the law and simply continue to report an item that should be reported as included in bankruptcy as currently open and collectible. This is highly illegal and damaging to one’s credit report and credit score.
You don’t have a right to assume that your credit report is correct. If you have filed for bankruptcy, you have less of a reason to believe that items in your credit report are being reported accurately. If you want to get your fresh financial start, you’re going to have to do some work by looking at your credit report to make sure everything is accurate.
The law provides you with a free credit repair lawyer for those times that you need one. Under the Fair Credit Reporting Act, if there are items on your credit report that are not reporting accurately, call us at Credit Repair Lawyers of America. Will be happy to look at your credit report with you for free and provide you advice and a free no obligation consultation. If we have to file lawsuit in your behalf, we can clean up your credit report at no cost to you.
Call or email attorney Gary Nitzkin at [email protected] or call me toll-free at (888) 293 – 2882. I want to be your free credit repair lawyer.