It’s a scary thought. Someone out there has your personal information. They are using it to open new accounts, run up debt, and ruin your credit rating. Bankruptcy is a powerful tool for recovering from identity theft. Bankruptcy can completely clean your credit. Bankruptcy can also shut down anyone who has stolen your identity.
Identity theft occurs when someone uses your personal information without your permission. Your personal information is used to commit fraud or other crimes. Personal information can include falsely using your full name and Social Security number. Other times, it simply includes using someone else’s credit card number or bank account information without permission.
Identity thieves can use your information to open new lines of credit, take out loans, or run up debt on existing accounts. Even worse, sometimes crimes can be committed while using your name. The end result is damage to your credit score and a lot of headaches. It takes a lot of work to clear up the mess an identity thief can leave behind.
Bankruptcy is a legal process. It allows individuals or businesses who are unable to pay their debts to have those debts discharged. Or, in other cases, the debts can be repaid under the protection of the bankruptcy court. There are two types of bankruptcy that individuals can file for: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is also known as liquidation bankruptcy. It is known as a “fresh start.” Most debts can be discharged in a Chapter 7 bankruptcy.
Chapter 13 bankruptcy is a repayment plan. You can repay all or part of your debts over a period of three to five years. Once the repayment plan has been completed, any remaining debts are discharged.
In short, yes! Bankruptcy can fix identity theft by providing debtors with a clean slate—literally. When you file for bankruptcy, an automatic stay is put into place that stops most collection activity against you. That means all lawsuits, wage garnishments, repossessions, and foreclosures are instantly stopped. This stay also applies to creditors trying to collect debts that were incurred as a result of identity theft.
For example, let’s say you discover that someone has opened up several lines of credit in your name. They have run up $10,000 in debt. Once you file for bankruptcy, that $10,000 debt will be discharged along with any other eligible debts you may have. Because the automatic stay is in place, creditors will also no longer be able to sue you or garnish your wages. In other words, filing for bankruptcy provides you with a fresh start. That’s exactly what you might need after falling victim to identity theft.
If you’re struggling with overwhelming debt—whether it’s from identity theft or anything else—filing for bankruptcy may be the best solution for you. An experienced bankruptcy attorney can help you determine which type of bankruptcy is right for you. A bankruptcy attorney can guide you through every step of the process so that you can get the fresh start you deserve.
You should consider also hiring a credit monitoring service after you file for bankruptcy. Bankruptcy should thoroughly shut down your identity theft problem. However, you should consider hiring a credit monitoring service such as Lifelock, Aura, or Identity IQ. These services monitor your credit with alerts that keep you up to date. They also help you with disputes and recovery. Essentially, they notify you and protect you if identity theft begins to take place again in the future.
Very rarely, you can face hurdles if you are a victim of identity theft and filing for bankruptcy. In these rare cases, you may be forced to prove that a large debt is from identity theft. In bankruptcy, debtors make a list of all their creditors on the bankruptcy petition which is filed with the federal bankruptcy court. As the bankruptcy proceeds, creditors are allowed to object to a debt. Although rare, this can be a hurdle for some victims of identity theft. It usually only comes into play if a victim of identity theft has a very large debt. For example, let’s say that a debtor lists a debt of $50,000. The creditor may think that the debtor is not actually an identity theft victim. If the debt was incurred recently, the creditor may mistakenly believe the debtor was trying to commit fraud. The creditor is then allowed to object. It is important to have an experienced bankruptcy attorney in this situation. The bankruptcy attorney will be able to represent you properly at this point during an adversary proceeding. Sometimes this type of representation is for an additional cost. Keep in mind that this situation is rare. It does not happen during most identity theft cases.
One way to help prevent any type of adversary proceeding in an identity theft case is to make sure that you have filed a police report. Also, have records showing you notified the credit bureaus of the identity theft. This needs to be done before the bankruptcy case is filed if possible. For more information on what to do if your identity is stolen, make sure to visit this U.S. government’s website. An experienced bankruptcy attorney can help you make sure that you have followed all the necessary steps. This will increase your chance of getting the debts incurred through identity theft discharged in bankruptcy with no problems.
Don’t let identity theft ruin your financial future. If you’ve fallen victim to this crime, know that filing for bankruptcy can fix things. It will give you a clean slate. An experienced bankruptcy attorney can help guide you through every step of the process. You can then get back on track financially as soon as possible.