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File Segregation Scam

If you have filed for bankruptcy or have bad credit generally, you could be the target of a fraud the Federal Trade Commission (FTC) calls "file segregation". In this scheme, you are promised a chance to hide unfavorable credit information by establishing a new credit id. That may sound perfect for your circumstance, except that "file segregation" is illegal and you could face fines or even a prison sentence.

It often starts out as an innocent ad from a credit repair company promising to eliminate all negative remarks on your credit file including a bankruptcy and establish a new credit file to use when you apply for credit. If you sign up for the service (which you pay for), you may be directed to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Typically, EINs, which resemble Social Security numbers, are used by businesses to report financial information to the IRS and the Social Security Administration.

After you receive your EIN, the credit repair service will tell you to use it in place of your Social Security Number when you apply for credit. They'll also tell you to use a new mailing address and some credit references.

To convince you to establish a new credit identity, the credit repair service is likely to make a variety of false claims. The following false claims from the Federal Trade Commission, along with the pitch for getting a new credit identity, should alert you to the possibility of fraud:
1. You can't get credit for 10 years after bankruptcy - Each creditor has its own criteria for granting credit. Some will decline for years after a bankruptcy. Some will not. And, given a new reliable payment record, your chances of getting credit will probably increase as time passes.
2. The "file segregation" program is affiliated with the federal government - The federal government does not support or work with companies that offer such programs.
3. The "file segregation" program is legal - Per FTC, "it is a federal crime to make any false statements on a loan or credit application. It is a federal crime to misrepresent your Social Security number. It also is a federal crime to obtain an EIN from the IRS under false pretenses. Further, you could be charged with mail or wire fraud if you use the mail or the telephone to apply for credit and provide false information. Worse yet, file segregation likely would constitute civil fraud under many state laws."

The law not only prohibits false claims about

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