Bankruptcy, Debt and Your Credit Report
I am contacted nearly every day about whether I can “clean up” someone’s credit report. It usually goes like this: the person has just been denied from renting an apartment because of a past eviction, or denied a car loan because of four or five or six defaulted credit card or loan balances on their credit report.
Can I remove these derogatory facts from the person’s credit report so he or she can get that apartment or car loan or credit card? Well, no. In fact, no one can. No one can force the three credit reporting agencies to remove accurate information about you from your credit report.
After a few questions, I learn that this person has a judgment for unpaid rent in that eviction, plus a couple of other judgments for old credit card debts and is not even sure how many other debts he has for unpaid cell phone bills, medical bills, and personal loans.
But the primary worry this person has called me about has to do with being approved for new credit—whether that’s in the form of signing a lease or getting a new loan.
The problem is that this person has it all backwards. The first problem is the old debt he or she already owes. If he or she has moved around much or changed jobs, or just not enough time has gone by, then perhaps the old creditors haven’t begun to aggressively collect on those existing debts. But that doesn’t mean the debts have gone away.
Those creditors that have already obtained court judgments against the debtor have a number of ways to collect on their judgment debt. They can garnish wages. They can take money from the debtor’s bank accounts. They can attach a lien to the debtor’s property. Collections by a judgment creditor hurt—especially when they start garnishing 25% of your paycheck in California.
So I find that frequently I need to help prospective clients understand that their credit is the least of their problems. It’s the defaulted debt—and especially judgment debt—that will hurt them for years to come.
Credit and credit scores reflect one’s ability to obtain new debt in the future. To take new loans or get new credit cards, or qualify for a mortgage. That’s all fine and good. But you have to deal with the debt that you already have before you worry about getting new debt in the future.
Dealing with the debt that you already have is what bankruptcy does. Those old judgments, evictions, car repossessions, and defaulted loans can all be discharged in whole or in part through Chapter 7 or Chapter 13 bankruptcy. As a positive consequence, often times peoples’ credit does improve after bankruptcy, most likely because the credit reporting agencies believe that now that you have discharged the old debt you’re a better credit risk for new debt going forward.
One should never confuse debt that exists and is collectible with credit, or the ability to take on new debt in the future.
“Credit Repair” companies are … to the extent they promise to remove negative, but true, blemishes from your credit report … are simply frauds. Plain and simple. If it sounds too good to be true, it is. Duh.
We’re here to help consumer debtors deal with their existing debts in Chapter 13 and Chapter 7 bankruptcy. Call our bankruptcy attorneys in San Jose today for a free consultation.
