News Release: For Immediate Release

www.bbbhou.org * bbbinfo@bbbhou.org * Council of BBBs: www.bbb.org *
24-Hour Information: 713-868-9500, (800) 275-3626 (from area code 409 only)

FILE SEGREGATION: A NEW IDENTITY
- NOT A GOOD IDEA!

If you have filed for bankruptcy, you may be the target of a credit repair scheme called "file segregation." In this scheme, a credit repair company promises, for a fee, to help you hide your bankruptcy and establish a new credit identity to use when you apply for credit. The problem is, file segregation is illegal. If you use it, you could face fines or even a prison sentence.

These dishonest credit repair companies make their pitches in classified ads, on radio and TV, and over the Internet. If you pay their fee and sign up for their service, 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.

When you receive your EIN, you will be instructed by the credit repair service to use that number instead of your Social Security number when applying for credit. They will also tell you to use a new mailing address. To convince you to establish a new credit identity, the credit repair service is likely to make a variety of false claims. These false claims, along with the pitch of getting a new credit identity, should alert you to the possibility of fraud. You'll probably hear:

Claim 1: You will not be able to get credit for 10 years (the period of time bankruptcy information may stay on your credit report). Keep in mind, that each creditor has its own criteria for granting credit. While one may reject your application because of bankruptcy, another may grant you credit shortly after you've filed for bankruptcy.

Claim 2: The company or "file segregation" program is affiliated with the federal government. The federal government does not support or work with companies that offer such programs.

Claim 3: The "file segregation" program is legal. It is a federal crime to make any false statements on a loan or credit application, to misrepresent your Social Security number, and 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.

If you have a problem with a credit repair company, report the company to the Better Business Bureau at 713-868-9500, 1-800-275-3626 (from area code 409) and the Texas Attorney General’s Office.

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