What Can a Lawyer do about Credit Repair Scams?
by Ellise Walsh

The endemic credit crisis that is going on begins to take on a proportion that is larger than just the problem of the individual creditor. As a lawyer or legal professional, if your customers are experiencing this kind of difficulty, it could very well result in very real legal issues that they will have to come to you for assistance with. Whether the outcome is a bankruptcy, legal disputes over contract violations, or even direct credit fraud that can result if your client seeks desperate measures to resolve his or her credit difficulties, the outcome is not a good one.

So, part of a lawyer’s responsibility is to assist your customer base with avoiding risky or potentially illegal credit related activities that can result in much bigger problems down the line. This is particularly true of the well-known credit repair scams.

These unscrupulous operations prey on people who are getting to the point of desperation with their credit and use unethical or illegal means to provide short term relief. The result is always either a greater dept load for the customer, a credit reputation that is even more damaged than before or legal ramifications. By providing guidance to your clients, you keep them from such legal and financial disaster which is good client service and serves to keep them as long-term customers as well. The first step then is for you to be educated and aware of how credit repair scams work so you can advise them well and recognize problematic arrangements before they get too far along.

Keeping the Debt on the Move

Easily one of the most common methods of handling a large debt load used by consumers is to move the debt from creditor to creditor. High interest rates encourage it as consumers will continuously move their debt to the lowest rate creditor so the maximum value of their payment is realized. For the most part, credit card companies know this is happening. As a result, as back and forth as a cat and mouse game between debtors and creditors goes on daily.

However, the act of getting a secured loan just to pay off another secured loan from bank to bank without being forthcoming about the nature of the loan rides that border between unethical and illegal. Because it places a larger sum of money against the debt, unscrupulous credit scams use this method and the negative credit impact is eventually put upon the customer. The outcome is their credit is actually more damaged and not fixed at all.

Working the System

It is somewhat of an urban myth that a consumer’s credit report can be manipulated to produce an artificially high credit rating. The credit report is a centralized recording of your credit history, your current accounts, payment status, inquires, etc. It is a wealth of information for future creditors about how credit worthy you are.

Believing that somehow by “doctoring” the credit report with credit fix scams will result in a higher credit rating is both errant and foolish. Among the tricks such credit repair scam attempt is badgering creditors to remove their negative report from your credit history so those entries disappear or putting false credit approvals on the report by becoming an associate signer on a friend’s credit card even though you never will use the credit. In general, these scams do not work, rarely alter your credit report contents, and only place you at a higher risk for being regarded as a credit problem.

When a Bankruptcy is not a Bankruptcy

This scam attempts to capitalize on a perceived hole in the chapter 13 bankruptcy rules. The error is in thinking that you can file for Chapter 13 Bankruptcy, go partially through the steps and it never becomes an actual bankruptcy. The scam involves the procedure in which each creditor is notified for an appointment to dispute the bankruptcy. By making the process of showing up difficult, mailing the notice too late, giving inaccurate information so the creditor fails to step in before the debt is nullified, the credit scam maintains the debt can be wiped out but the bankruptcy never becomes a legal entity.

This is a dangerous error. First, a bankruptcy is just that so the damage to the credit rating of the consumer is powerful and tangible. This is not law to play games with. Secondly, the laws are quite explicit that this kind of effort to play “shell games” with financial disclosures and details of the bankruptcy is fraud and is illegal and can come with some stiff prison time. So if your client is now, or is considering such a risky proposition, perform your duty as legal counsel and steer them clear of it.

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