If you have filed for bankruptcy, you may be the target of a new
credit repair scheme, often 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 you fear that you will not be given any credit
as long as bankruptcy appears on your credit record.
The problem is, "file segregation" is illegal. If you use it, you
could face fines or even prison.
This fact sheet alerts you to some aspects of this new type of credit
repair scam, describes the false claims that fraudulent companies
sometimes use to sell you the service, and says why participation is
illegal. It also lists other FTC brochures that discuss your credit
rights and responsibilities.
The Pitch: A New Credit Identity
If you 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 ten
years. For a fee, the company promises to help you hide your
bankruptcy and establish a new credit identity you can use when
applying for credit.
If you 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.
After you receive your EIN, you are advised to use it in place of
your social security number when you apply for credit. You also are
advised to use a new mailing address and to include some credit
The Catch: False Claims
Listed here are reasons a credit repair service may give you for
establishing a new credit identity. These false claims, along with
the pitch for getting a new credit identity, should alert you to the
possibility of fraud.
Claim 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 obtaining
credit will probably increase as time passes.
Claim 2: The company or "file segregation" program is affiliated with
the federal government.
The federal government does not support or work with companies
offering such programs.
Claim 3: The "file segregation" program is legal.
It is a federal crime to make any false statements on a loan or
credit application, which the credit repair company may advise you to
do. 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. Also, file segregation would likely constitute civil
fraud under many state laws.
If you receive a letter from a company making such claims, contact
your state attorney general or consumer protection office. You also
can file a complaint with the FTC. Write: Correspondence Branch,
Federal Trade Commission, Washington, D.C. 20580. While the FTC does
not handle individual cases, it can act against companies when it
sees a pattern of possible law violations developing.
Other FTC Brochures
For more information about credit reports, you can order these free
FTC brochures: Building a Better Credit Record, Credit Repair Scams,
Fair Credit Reporting, Fix You Own Credit Problems and Save Money,
Scoring for Credit, Solving Credit Problems, and Women and Credit
Histories. Write: Public Reference, Federal Trade Commission,
Washington, D.C. 20580.
Facts for Consumers from the Federal Trade Commission
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