File Segregation: Establishing New Credit Identity |
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Credit repair services will pester you to avail their help such as file segregation, if you have applied for bankruptcy. These companies warn you that if you have filed for bankruptcy, you will not be able to get credit cards, personal loans
, or any other types of credit for 10 years. As a solution they suggest file segregation, whereby you have a chance to hide unfavorable credit information by establishing a new credit identity. But you should know that file segregation is illegal. You could face fines or even a prison sentence, if you use it. These companies advertise on radio, TV and on the Internet that for a fee they can help you hide your bankruptcy and establish a new credit identity to use when you apply for credit. When you pay the fee and sign up for the credit repair services, you may be asked to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). EINs: which resemble Social Security numbers: are used by businesses to report financial information to the IRS and the Social Security Administration. The credit repair services will then tell you to use EIN in place of your Social Security number while applying for your credit. You will also be asked to use a new mailing address and some credit references. The credit repair services might make many claims to entice you to establish a new credit identity. You must be very careful and be on your guard while listening to these claims. You might hear the following claims: 1) Since the bankruptcy information stays on your credit record for ten years, you will not be able to get credit for that period of time. 2) If a creditor rejects your application because of bankruptcy, there may be another who will grant you credit shortly after you file for bankruptcy. If you develop a good new payment record, you will have better chances of getting credit over time. 3) The company or file segregation program is affiliated with the federal government. You should know that the federal government does not support or work with companies that offer such programs. 4) The file segregation program is legal. Remember that it is a federal crime to make any false statements on a loan or credit application and to misrepresent your Social Security number. Obtaining an EIN from the IRS under false pretenses is also a federal crime. Moreover, if you use the mail or telephone to apply for credit and provide false information, you may be charged for mail or wire fraud. Under many state laws, file segregation would likely constitute civil fraud. You should know the relevant laws It is illegal for credit repair services to charge you until they have successfully completed their services. Under the law, they must provide you with your legal rights in writing as part of a written contract spelling 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. The contract must also explain that consumers have three days to cancel at no charge. You have the right to sue in federal court, seeking either your actual losses or the amount you paid the company: whichever is more, under the credit repair services law. You can also claim punitive damages: sums of money to punish the company for violating the law. Class actions: cases where groups of consumers join together in one lawsuit: are also allowed by the law. The other side will have to pay your attorney's fees, if you win. If you have had a problem with a credit repair company and have lost money to their scams, you should report the company. Many states have laws regulating credit repair services. You should 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. |
