Most of the time when New York bankruptcy lawyers discuss scams, they’re worried about con artists taking debtors’ money and forcing them into bankruptcy. The most common scam is debt settlement.
A less common but sometimes more problematic scam occurs post-bankruptcy: the “credit rehabilitation scam.” The point is to deceive people into promising to repay debts that have already been discharged. Enticing someone to do so is by definition an actionable violation of the discharge order.
Here’s how it works: The petitioner exits bankruptcy after discharging some amount of credit card debt. Then, the former creditor sells the discharged debt to a new creditor. This new creditor contacts the former debtor and offers her an opportunity to “rehabilitate” her credit rating by moving all the discharged debt onto a new credit card account, which may have a little extra credit on it as a gesture to the debtor. Anxious about her credit rating, the debtor jumps at the opportunity without knowing that by signing a new agreement the debt is brought back to life.
In fact, once the debts have been discharged, it is easy enough to open a new credit card account with a reputable bank, though the new bank may let a brief time pass before it makes an offer.
How, then, can the original creditor get away with selling discharged debts to a third party? Discharged debts aren’t voided; they remain on the creditors’ books but must be reported to the credit bureaus as discharged.
There’s nothing illegal about selling a discharged debt. What happens in a credit rehabilitation scam, though, is the third-party creditor does not update the debt’s status to the credit bureaus and it contractually prohibits the original creditor from doing so as well. Then it tries to get the original debtor to repay a debt that’s already been discharged.
The obvious response to a debt rehabilitation scam isn’t just to ignore it but to contact an experienced New York bankruptcy lawyer to either threaten the creditor with litigation if it continues its scheme, or to bring a contempt motion against it in bankruptcy court for discharge violation.
Once the debt is properly reclassified as discharged, the rehabilitation offers should cease. More importantly, the debtor can expect her credit score to begin improving because that often happens after a successful discharge.
For answers to more questions about credit rehabilitation scams, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy lawyer Brooklyn NY Bruce Weiner for a free initial consultation.