When filing for bankruptcy, it’s important to list everything you owe. Not only do you have an obligation of full disclosure, but you also risk having a debt survive your case because you failed to include the debt in your bankruptcy schedules.
New clients often ask whether I can pull a credit report to get a list of their debts. While I can and do order credit reports for my clients, I also stress to them that a credit report is only a starting point. To capture everything that’s owed, we have to look at other sources of information.
Here are five reasons why your bankruptcy lawyer needs more from you than just a credit report.
First, there are three major credit reporting agencies: Equifax, Experian, and TransUnion. Some creditors will report a debt to only one or two of these companies. Unless you’re getting credit reports from all three bureaus, you might miss a debt because the “right” report wasn’t pulled.
Second, some debts aren’t reported to any of the credit agencies. For example, medical and utility bills usually don’t appear on a credit report unless they’ve been handed off to a collection agency. Even then, debt collectors tend to be hit-and-miss when it comes to credit reporting.
Third, a credit report can be incorrect. Different studies have come up with different estimates of just how common the problem is, but it’s clear that many people have at least one error on their credit reports. A bill that came directly from the creditor is more reliable than information from a middleman.
Fourth, most debt will fall off a credit report after seven years have passed from the last activity on the account. This has no effect on whether the debt is still legally owed. Even if the debt is also time-barred under the statute of limitations, you still owe it — the statute of limitations just limits the remedies available to the creditor for enforcing the debt in court.
Fifth and finally, the bankruptcy schedules call for a list of your “claims.” The Bankruptcy Code’s definition of a claim is very broad, and it includes things that don’t involve an unqualified obligation to pay someone a certain amount of money. For example, let’s say you were in a car accident a month before your bankruptcy filing, and there’s disagreement on which driver was at fault. At this point it’s not clear how much you owe the other driver, or whether you owe anything at all. This sort of claim probably won’t appear on a credit report unless and until a judgment is entered against you. Still, it needs to be included on your bankruptcy schedules.
Credit Reports Are Necessary, But Not Sufficient
Don’t get me wrong — credit reports are definitely helpful when preparing a case. I’d even suggest that reviewing a credit report is an essential part of the due diligence that’s expected of bankruptcy attorneys. The report often catches debts that have been forgotten by the client, and it sometimes alerts me to a new collection agency or bad debt buyer that just recently got its hands on an account. In fact, because a credit report compiles so many debts into one convenient list, it’s usually the first thing I look at when I’m tallying up everything that my client owes.
As we’ve seen, though, a credit report by itself just isn’t sufficient. At a minimum, I’ll also ask for a bill from each creditor and any collection letters received. This often means I’ll see the same debt more than once when reviewing a client’s documents, but as the saying goes, too much is better than not enough.