Dear Bankruptcy Adviser,
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My checking account and credit information were stolen last year. I didn't find out until January of this year that I had been a victim of identity theft. The consequences have been severe. My bank froze my account for three months. That meant I couldn't pay my legitimate credit card bills. The interest rate on my credit cards went up to 39%. My minimum payments rose to $400. I am also paying on a home equity loan with $20,000 outstanding. I am permanently disabled, and I have become physically ill from the stress of the theft, compounded by the difficulties of closing fraudulent credit accounts and correcting credit reports. In your opinion, should I file bankruptcy?
I can't say for sure whether bankruptcy is an option because I don't know enough about your assets. You may have quite a bit of equity in your home if you only have a home equity loan for $20,000. If so, that could eliminate bankruptcy as an option. It would depend on how much equity your state allows people to exempt in a bankruptcy.
However, you may still have time to fight the identity theft and possibly avoid bankruptcy. I am leery to discuss this option because you state that the episode has greatly strained your health. Dealing with all the details of identity theft repair will likely cause greater stress. The amount of paperwork you need to put together can be daunting.
You are hardly alone. Identity theft is becoming commonplace. Many people will have to deal with it at some point in their lives. There are ways to decrease the chances of it happening again. However, those will not help you now. You need to fix what has already occurred.
Yes, bankruptcy might be the easiest way to resolve the issue. If you qualify, all of the fraudulent accounts would be wiped out. But if bankruptcy is not available to you, then you have to start working to repair your credit on your own.
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Here are some of the initial steps you can take and possibly avoid bankruptcy altogether.
- Breathe. This is not going to be done quickly. You will need to spend at least one to two hours a day on this issue until it is resolved. Remember this saying: "Patience is a virtue, but persistence to the point of success is a blessing."
- Form a plan. An excellent place to start is the Federal Trade Commission. The FTC's Web page on ID theft is the place to start gathering information on how to clean up the unauthorized accounts.
- Get credit reports. You need to get a copy of each credit report from all three of the major credit reporting agencies: Experian, Equifax and TransUnion. You are entitled to a free credit report from each of the companies through annualcreditreport.com once every 12 months. Ignore any sites that want to sell you services or give you a credit score. You don't need a credit score now (and it will only stress you out more). You just need to see what accounts are fraudulently on your reports.
- Place a fraud alert with each of the three credit reporting agencies. This will put future creditors on notice that you were the victim of fraud. It is easy to do this online at each of the three major agencies.
- Dispute each fraudulent account directly with the credit reporting agencies. This is easy to do and can be done entirely online.
- File a police report. Filing will take you a few minutes and the creditors will require this when you dispute each account. Make 10 copies of the report.
- Complete a fraud affidavit and have it notarized. The creditor might send you one when you call to report the fraudulent account. Or you can obtain one online. You will need to send the police report and notarized affidavit to each creditor, by certified mail -- over and over again. Make 10 copies of the affidavit.
- Start calling creditors. You will be the one responsible for keeping a log of each person you talk to. Confirm what documents they have received. Follow up with each creditor every week. Be nice, but do not expect the creditor to believe you. Documents will sometimes get lost even after you have confirmed receipt. Be patient, and send them again and again if you have to.
- After you have had some success correcting some of the fraudulent accounts, you can start contacting your legitimate creditors. You want to ask for accommodations to pay back the debt you have in light of the evidence you now possess. This will take some time, but some of the creditors will be willing to work with you. While the negative late payment marks probably will not come off of your credit report, you might be able to reduce the interest rates on the cards. I have had some clients even restore the positive credit history with some of their creditors.
As you can see, this will not be an easy task. But you can have small successes throughout the day that will motivate you to continue with your fight. You can resolve this issue.