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State of Michigan

My wife filed for chapter 7 bankruptcy 10 yrs ago and one of the debts was with Ford Motor Credit. She has good Credit now and I have okay credit. We wanted to purchase a Ford automobile from a ford dealer and we were told they wont finance her due to a $9,500.00 charge off from the bankruptcy. I was told by the sales men that Ford doesn't forgive charge offs very well. My question is... can they use that to keep us from getting a loan legally? I thought when a debtor is relived of debt, it all goes away form the records and cant be used against you in the future

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A bankruptcy discharges your debt and that bankruptcy goes on your credit report. Now, under the "Fair Credit Reporting Act" (FCRA), that information may only stay on your record up to 10 years (in the case of a bankruptcy, 7 for most other things). After 10 years the negative marks fall off of your credit report.

However FCRA only applies to credit reporting (consumer credit reports), it does not bar individual creditors to keep records of individuals indefinitely and use that information against them in future credit applications. Ford, in this case, has a record of the account and reason for closure and is denying credit, they are within their rights to do so.

So I would check your 3 agency credit reports to verify that the bankruptcy has fallen off (verify your bankruptcy date and discharge dates first). If Ford is still reporting the account, call the reporting agencies to have it removed. Then you can apply for credit outside of Ford (of course they'll tell you that you lose all the incentives), but at least you can buy a vehicle. Or choose another brand to go with.

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Bankruptcy discharges debts, so the debtor effectively no longer owes the money.

But bankruptcy remains on the debtor's credit record, and a prospective creditor (here, Ford Credit) can consider the prior bankruptcy in deciding whether to grant or refuse credit. This has at least two aspects:

  • A customer who has declared bankruptcy is less attractive than one who hasn't, as the customer has demonstrated a willingness to avoid paying prior obligations.

  • Depending upon the type of Bankruptcy relief previously obtained, filing a subsequent Bankruptcy petition may require the debtor to wait a number of years before doing so. Paradoxically, this mandatory waiting period cuts the other way and makes the prospective debtor a better risk, as he or she can't immediately file the subsequent petition for relief. Your wife could now file a subsequent petition in Bankruptcy, so this factor would count against her.

Secondary sources (for example this one) suggest it's common that Bankruptcy affects one's credit for seven to ten years, but I see no law restricting a prospective creditor's consideration to that (or any other) period.

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  • There are credit reporting laws that limit this time line. – ohwilleke Jul 3 '20 at 19:59
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    @ohwilleke Yes, some laws limit the time that credit reporting agencies may report this data. The laws do not, however, limit prospective creditors from consulting their own data, or data obtained by independent investigation. The facts presented in this question show that Ford was both the prospective new creditor as well as being a prior creditor, and undoubtedly already had the prospective buyer's data internally without having obtained it from a credit reporting agency. – DavidSupportsMonica Jul 3 '20 at 20:08
  • interesting, it kind of makes bankruptcy pointless. I am sure nobody is holding Donald Trumps bankruptcies against him. Everyone is willing to extend credit to him. Of course becoming POTUS probably helps a lot. – Daniel Jun 23 at 13:28
  • @Daniel no, it doesnt make bankruptcy pointless, because after a given period of time it goes away on your public record and then you can approach other lenders - but theres no reason why a bankruptcy should wipe out a particular lenders internal opinion of you, it just means they cant say that to other lenders (ie your credit report). The law isn't there to force a creditor to lend to someone they have specific experience of being a bad debtor, its to limit (not eliminate) the effect of a period of being a bad debtor in general. – Moo Jun 23 at 23:27
  • @Daniel Bankruptcy also isn't pointless because it removes the legal obligation to pay for the discharged debts. That's the whole point. – DavidSupportsMonica Jun 24 at 0:34

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