Tag Archives: credit repair

Should Bankruptcy Cause a Guilt Trip?

Sheep dog covering her eyes with her pawASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed for bankruptcy a year ago. I felt badly about filing, but after paying my bills every month I had $10 left to last until the next month. Financially, I am now better off. Can I pay my old creditors back in order to get credit? I know it’s not right to run out on creditors. 

Carol

Dear Carol,

I’m really glad you’re now better off.

But your old credit is gone. Paying the old creditors does not make it come back. However, you can take steps to rebuild your credit so that you can get new credit or loans in the future. For tips, see Nolo’s Rebuilding and Improving Credit topic page.

Bankruptcy ≠ Running Out on Creditors

I’d like to clear up something else. By filing for bankruptcy, you didn’t run out on your creditors. In your bankruptcy, you subjected all of your assets to administration by the court. If the trustee found anything of worth, he or she would have sold it to pay your debts.

If you had engaged in financial wrongdoing, the court would not have granted you a discharged. And in giving you the discharge, the court also determined that you could not afford to pay anything and maintain a very modest standard of living. The privilege of a bankruptcy discharge is reserved for people like you who are honest but unfortunate.

I wonder if the CEO of General Motors feels bad about the millions of shareholders, bond holders, and creditors who didn’t get paid those billions of dollars owed in the GM bankruptcy. I certainly hope so, but I doubt it.

Keep doing well, and stop looking back.

— Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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Equifax Gets Slapped by Oregon Jury

gavel over money istockLast week an Oregon jury awarded a whopping 18.4 million in punitive damages against Equifax, one of the three national credit reporting agencies. The plaintiff in the lawsuit, Julie Miller, had tried to untangle her credit file for two years (Equifax had mixed her information with that of another Julie Miller) – but she  hit a brick wall . . . until she sued.

Trying to Untangle “Mixed Files” in Your Credit Report: Are You Facing a Brick Wall?

Mistakes in credit reports are common.  Up to 25% of credit reports contain errors. Some errors are severe enough to cause consumers to be declined for loans or credit cards or suffer other negative credit consequences. (See my previous blog post on this issue, FTC Report: 1 in 4 Credit Reports Have Errors.)  While the Consumer Reporting Act requires credit reporting agencies (CRAs) like Equifax to follow certain procedures to correct errors once disputed by a consumer, those procedures don’t always work. (To learn how to dispute credit report errors, visit Nolo’s Cleaning Up Your Credit Report topic area.)

As a recent New York Times article on the Miller verdict points out, when consumers try to fix “mixed files” errors (where the credit reporting agency includes information from one consumer on the report of another, often because they share the same or similar name) they don’t often get results. This is because the CRAs like to deal with disputes using automation – and mixed files can’t be untangled that way.

Does Equifax Care?

The 18.4 million award to Julie Miller is reportedly the largest ever seen in this type of case. But lawsuits against credit reporting agencies are common. Some consumer lawyers say that large verdicts, such as this one, are just a cost of doing business for Equifax. They don’t see this case as changing behavior. Others say this might catch Equifax’s attention.

The CFPB:  The Knight in Shining Armor?

The newly minted Consumer Financial Protection Bureau (CFPB) has the responsibility of overseeing the largest CRAs, and Equifax falls into that category. Along with taking measures to collect information from consumers and field complaints about CRAs, the CFPB also has the power to issue rules governing CRAs.

Consumer lawyers have been making a stink about problems with the CRAs’ procedures for a long time (I recall working on this issue as early as 1995.). But despite those efforts, the CRAs have changed little in the way they do business.  If the CFPB gets involved, however, the credit reporting agencies may be faced with a rude awakening. Time will tell.

What Can You Do?

In the meantime, if you have a complaint about a CRA, be sure to lodge it with the CFPB. It wants to hear from consumers. And the more complaints the CFPB receives about a particular problem, the more likely it will be to focus energy on addressing it.

You can file an online complaint with the CFPB by visiting its website at www.consumerfinance.gov and clicking on “Submit a Complaint”.

(You can learn more about credit reports, credit scores, disputing errors, and rebuilding credit in Nolo’s Credit Repair topic area.)

How Long Bankruptcy Remains on Your Credit Report

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

We declared bankruptcy in Kentucky in February 2005 and our debts were discharged that summer, prior to the new bankruptcy laws of October 2005. Will the bankruptcy still remain on our credit report for ten years?  

Regards,

Bruce

Dear Bruce,

Credit reporting information is not covered under bankruptcy law, so  it makes no difference that your case was filed before the bankruptcy laws changed in 2005.  How long information remains on your  credit report is governed by the Fair Credit Reporting Act (FCRA). The FCRA allows credit bureaus (also called credit reporting agencies) to list bankruptcies on your credit report for ten years. (To learn how long other types of negative information can remain on your credit report, see Nolo’s Credit Repair area.)

The various bureaus will report a person’s bankruptcy for the maximum ten years,  because their customers want it that way. The “customers” of a credit bureau are financial institutions, not consumers. Credit bureaus sell credit reports to financial institutions, who pay them a fee for the information.  A credit report is the product that a credit bureaus sells to subscribers, (just like a newspaper sells papers), and that is how each bureau makes money.

Again, think about a newspaper. If a certain newspaper has a reputation for printing unreliable information, it won’t stay in business very long. Likewise, if a credit bureau relaxed it’s reporting standards, financial institutions would not trust the information in those reports, and would start getting the information elsewhere.

– Leon

Guest blogger Leon Bayer practices bankruptcy law in Los Angeles, California.  He is a partner at Bayer, Wishman & Leotta.  

The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.