Beware post-bankruptcy credit report errors The Bankruptcy Adviser by Justin Harelik • Bankrate.com

Dear Bankruptcy Adviser,
It has been almost a year since my discharge for Chapter 7 and I recently reviewed all three credit reports. Should any of the accounts that I listed in the bankruptcy have the label, "collection" or "charge-off?" Should the accounts that I listed in the bankruptcy be classified as "derogatory?" Any information will help greatly in my fight to clear up my credit report. Thanks in advance.
-- David

Dear David,
In or around October 2005, the month when a more restrictive bankruptcy law went into effect, close to 1 million people filed bankruptcy. As a result, many mistakes were made. Your situation is one of the two most common problems facing people that file bankruptcy: the incorrectly updated credit report.

When you filed for Chapter 7 with the court, the court sent a notification to each of the creditors on your list. Let's say that a given creditor, "Joe's Bank," got the notification. Like all creditors in this position, Joe's Bank has a decision to make: Either contest the petition with the court or charge off the account (in other words, write off the account as a loss). If Joe's Bank had been trying to collect from you and then decided to charge off your account, your credit file might read, "collection/charge-off."

Now, once you receive your bankruptcy discharge from the court, the court has also sent these notifications to your creditors. Thus, in our example, Joe's Bank should change your file to read, "discharged in bankruptcy." But apparently this didn't happen.

While you might think that the problem with your credit report lies with the three credit reporting agencies, it actually is the fault of the creditor. This is because creditor records of this type are linked automatically to the data banks at the credit reporting agencies. When the creditor changes its file, the credit reporting agency's record for you changes, as well.

However, the way to handle this is not to contact the creditor, but to go directly to the three credit bureaus. Send letters to Experian, Equifax and TransUnion and ask them to update your credit report.

Include in your letters to the credit bureaus:

• Your bankruptcy discharge notice. • The "schedule of debts" from your bankruptcy paperwork. (This shows the credit bureaus that the account record you want changed was included in your bankruptcy filing; highlight each account that is not listed correctly.) • A copy of your driver's license. • A copy of your Social Security card. • Another proof of address, such as a utility bill.

The credit bureaus will update these accounts and change each trade line to "discharged in bankruptcy." This can take a while, but the process is fairly straightforward.

The other most common problem facing those that filed during the crush surrounding October 2005, is that their car finance companies (lenders) did not properly record their payments, and as a result, they are facing repossession.

For most people who have not filed bankruptcy, you can expect some warning before your car is repossessed. Suppose you have a car loan but are not declaring bankruptcy. If you miss a payment, the bank sends a letter that says: You missed a payment. If you miss another, you get another letter that says: You missed another payment. If you miss another you get a letter that says: We're coming to repossess your car. The reason you get some flexibility is because the car lender thinks you will ultimately make good on the terms of your loan; that's why the creditor gave the car to you in the first place.

However, if you declare bankruptcy, now you are considered a credit risk. The lender thinks that it's highly unlikely that you will make good on the loan, and it's to the lender's advantage to repo the car and resell it ASAP. Therefore, if you miss one payment, they may come for your car. This is true even if you have reaffirmed this debt.

The problem is that, sometimes, a payment that's been made is simply not recorded. I'm not sure why this is, but it does happen. The solution is to keep accurate records of all your financial transactions so that when the lender says, "Hey, you missed a payment, we're coming to repo your car," you can provide the lender with evidence that your check has been cashed. I recommend that in addition to recording all payments in your checkbook that you send them via certified mail with return receipt requested. Make sure you have the evidence you need to contest a mistaken (or fraudulent) claim.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser go to the "Ask the Experts" page, and select "bankruptcy" as the topic.