We’ll help you do your own bankruptcy, promises the ad.
And for a few dollars more, we’ll sell you the secret to keep your bankruptcy off your credit record.
That pitch plays neatly into the obsession that we have about our credit reports. Even when your financial world is upside down.
But this pitch has it all backward.
Why would you want to omit your bankruptcy discharge from your credit and leave all the debt that necessitated the BR filing showing as if was still enforceable?
Yes, bankruptcy is a black mark on your credit record. But so is old, delinquent debt that you can’t pay. Seeing old debt on your report makes it look like you could still be sued on that debt.
What business wants to make a loan to someone who appears to owe money they aren’t paying?
What consumer wants to look like a dead-beat?
Credit reporting after bankruptcy
What should your credit report look like after a bankruptcy discharge?
When a bankruptcy discharge wipes out a debt, the creditor must report the debt as having a zero balance.
They can report the backstory, but your credit record must show that you no longer owe the money.
That goes a long way to improving your debt-to-income ratio, a central element in credit scoring.
Bad debt appears for 7 years
Delinquent debt can stay on your credit report for 7 years, dragging down your apparent credit worthiness. The seven years doesn’t start running until the debt is sent to collections or is charged off by the creditor.
So, what’s the logic in saying that you’ll take the benefits of the bankruptcy discharge, but, shushhh, don’t tell anyone that I’m really debt free?
Games with your credit report
Bankruptcy is a public record. The docket of the bankruptcy court can be accessed online, if you really want to see who’s filed bankruptcy.
So how likely is it that the credit reporting agencies won’t pick up a bankruptcy filing?
More importantly, if a public record can be hidden from the credit reporting agencies and those who supply information to them, just how accurate is a credit report anyway?
Studies show that at least 20% of all consumer credit reports contain at least one material error.
So, get your head out from under the water and look around with clear eyes about what is important.
Danger in representing yourself
I’ve picked up and run here with just one of the misleading or dangerous claims this “service” purports to provide to people filing bankruptcy without a lawyer.
Admittedly, I’m not disinterested in seeing that people who need bankruptcy relief get a lawyer’s help to get all the relief available. Attorneys fees, after all, are how I make a living.
But I practice this kind of law because it’s a powerful tool for people in financial trouble.
And I’ve sat in too many courtrooms watching debtors without lawyers lose assets to the bankruptcy trustee, or make timing or disclosure errors that cost them big time.
But the cautionary tale about do-it-yourself bankruptcy is told elsewhere on Bankruptcy Soapbox.
Credit reports after bankruptcy
How to interview a bankruptcy lawyer