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Bankruptcy and identity theft

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"Identity theft won't happen to me, I don't buy anything off of the Internet."

Sounds familiar, right?

Well, last year, there were millions of Americans who said that and turned out to be dead wrong.

Identity thieves do not need to access your computer hard drive to run up debt in your name. Many of them just need an unattended garbage can, an over-trusting relative on your end of the phone or just the United State Postal Service. Whether it happens electronically, through the mail or in the county dump, identity theft is all about getting access to your money. And when your money is in the hands of someone else, so is your credit.

Thousands and thousands of identity theft victims have found themselves facing the decision to declare bankruptcy as a way to start fresh after identity theft has cost them too much to handle. In fact, many victims of identity theft discover that the perpetrators have filed bankruptcy for them when the official notices show up in the mail, which further hampers the victim's ability to pursue the case and creates greater legal distance between themselves and the crime.

Identity thieves are filing bankruptcy in their victims' names at an alarming rate. Apparently, the lure of the "automatic stay" is what prompts them to take their crime to the next level. The automatic stay is an injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against a debtor the moment a bankruptcy petition is filed. When the individual filing bankruptcy, in this case, the victim of fraud, fails to appear for the bankruptcy hearing, the case is then dismissed. However, the bankruptcy filing remains on the victim's credit report.

Those to whom this has happened will only find out about the bankruptcy when they, under innocent pretenses, apply for a loan or other form of credit. This not only significantly harms the credit and financial wherewithal of the victim but severely damages the positive intentions of a legitimate bankruptcy process, associating it with crime and wrongdoing.

A large number of bankruptcy cases are associated with identity theft. Some examples include:

  • Filing for bankruptcy under the name or identification (SSN#) of another person. This often entails ex-spouses, estranged family members or former business partners.
  • Getting into debt under a false name, filing for bankruptcy and then discharging the debt.
  • Transferring the deed, or ownership, of property to another and then filing for bankruptcy with that person's name to avoid foreclosure. In today's discouraging housing market, this is becoming more common.
  • Putting property under the name of a random person who is in the middle of a pending bankruptcy case, which will stop the foreclosure on the criminal's property once the victim is recognized as an owner.
  • Using a created or existing social security number to petition for bankruptcy.

This type of identity theft, like all forms, can be severely damaging to a person's credit and in many cases, can lead to the victim having to file a legitimate bankruptcy. In today's information age, and even more so in an economy that can perpetuate desperation, it is more critical than ever that we all monitor our credit and finances as closely as possible.

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