Erasing persistent credit report stains

Dear Bankruptcy Adviser,
I filed for Chapter 7 bankruptcy in June 1998. I understand the public record will remain on my credit file for 10 years until June 2008. However, I've heard, but not been able to verify, that any accounts on my credit report that were included in my bankruptcy may be removed after seven years. Is this true? If I'm able to remove the accounts included in the bankruptcy, will this action affect my credit score?
-- Phil

Dear Phil,
First, congratulations on successfully discharging your bankruptcy and attending to the details of your credit report. While you've still got some red tape to cut through, just getting to this part of the process is a significant victory.

You've asked a great question. Here's part one of the answer: Yes, you can have the agencies remove marks on your report that reflect debt that's seven or more years old. Technically, after 7½ years, the trade lines for these accounts are supposed to be removed automatically. However, some studies have found that a majority of credit reports have one or more errors. So it's best to check.

Here's an instructive scenario: Suppose you had an account with a bank and couldn't pay. At that time, the seven-year clock starts ticking. The bank tries to collect for a year and then sells your account to a collection agency which pretends that the seven-year clock has reset. They try to collect for a year and are not successful. Then they sell your debt to another collection agency, which pretends the clock is reset again.

Then, you file bankruptcy and successfully discharge the debt. However, on your credit report will be three trade lines. One is for the original bank and two are for the collection agencies -- yet all are for the same debt.

All three of these lines should disappear 7½ years after the original clock started. Unfortunately, in real life, that often does not happen. To get the marks removed, you need to take the specific actions I will detail below.

But first, part two of the answer: Yes, absolutely, getting rid of these marks will affect your credit score -- it will make it go up. As you reduce the number of negative marks, you could pass important credit thresholds such as 680 and 720. These are crucial cut-offs that can earn you lower interest rates on mortgages and car loans.

Edward Jamison, founder of Jamison Law Group, who specializes in credit repair, believes that any improvement to the "magic number" for your credit score of 720 is worth it. "The older a collection account is (or any derogatory for that matter) the less effect it has on the credit score. Anything that is seven years old or older (even a bankruptcy) has a very small effect on the score (one to 10 points max per item, with bankruptcy being the 10 point increase). Any collection, even ones included in a bankruptcy, should automatically come off after 7½ years from the date of last activity with the original creditor."

Phil, you may be eligible to receive one- to 10-point increases for each of the negative marks that are removed -- probably closer to the "one" part of the range, but every point counts.

To get the marks removed, you can put together your own letter for the credit bureaus or use a credit repair service. Make sure that you include the letters from the collection agencies that match up specifically with the creditor accounts. You must be able to show that the collection agency line on your credit report relates specifically to the creditor that sold the collection agency your account.

Your letter to the credit bureaus should include:

• Proof of name, such as a copy of your driver's license (with a clear picture).

• Two proofs of address, such as copies of your driver's license, pay stub or utility bill.

• Proof of Social Security number, such as a copy of your Social Security card or a copy of a pay stub or tax documentation showing the number.

• The relevant pages of your credit report.

• The relevant letters from collection agencies connecting to the original creditor account.

Bankrate also has a form letter to dispute credit errors that will help.

Phil, if you send a letter with these items to the three credit bureaus, they must remove the lines by law. Check your credit report again in six months to make sure. Good work!

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser go to the "Ask the Experts" page, and select "bankruptcy" as the topic.

John V
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