If you’re new victim of ChexSystems, let me tell you, it can be a real annoyance. The clever misspelling of checks as chex, has nothing to do with the cereal of the same name. ChexSystems operates like a credit bureau, collecting information provided by banks in a searchable database. You don’t have to worry about your neighbors searching though; you just have to worry if you’ve gotten yourself into their database when it comes time to open a new bank account. Let’s say, for instance, you accidentally wrote a couple of bad checks on an account (of course, it wasn’t on purpose and you probably paid late fees and made it good) and your bank closed your account. There’s a very good chance upon the closure of your account that you were reported to ChexSystems. You’ll know this is the case when you go to another bank to open an account. While you’re sitting in front of the banker, they run your name and social security number through the database and if it comes up flagged in ChexSystems, the bank refuses to open a new account. The bad news is just about every national bank subscribes to ChexSystems. You might get lucky at a local credit union, particularly ones that offer “second chance accounts,” a popular trend in banking as many people in this economy are finding themselves flagged in ChexSystems. The good news is I’ve discovered a fairly simple and fool-proof work around for victims of ChexSystems. Of course, there is a dispute process and you have rights to contest your listing in ChexSystems and even get a free credit report after you’ve been declined an account because of a ChexSystems listing. But you and I both know that these dispute processes are lengthy, in writing by certified mail, and almost never successfully ending in your favor. Although we’d all like to believe that the underdog in this society can bring the David to Goliath, so to speak, but in reality, people almost always lose against a corporation. So instead of beating them, let’s join them. The best solution is often right in plain sight and in this case, it’s to form a corporation.
Luckily, the legal system we operate in has this idea known as a legal fiction. Clearly established laws provide that an entity is treated the same as a person. What? A corporation, LLC, trust, or a partnership, basically any entity has the same standing in the law as a natural person. Sounds bizarre, I know but this is how the law works. When a corporation applies for a bank account, it uses its federal issued employer identification number (EIN) to open the account. If it’s a new entity, it’s guaranteed NOT to be listed in ChexSystems. For those of you at home, contemplating your ChexSystems problem, the solution is to create a corporation. Also fortunate is the ease with which a Nevada corporation can be formed, online and for about $200. With your new Nevada corporation or LLC, you can go to the bank and open a business account without worries of your ChexSystems problem because the account is not being opened with your social security number but the EIN. To complete the financial rescue, notify anyone that pays you that you’re doing business as a corporation and to make the payments out to the corporation. Additionally, you can take advantage of tax breaks by smartly filing an IRS Sub Chapter (S) election which allows the income to pass through to you, avoiding the double taxation of corporations. I hope you’ve enjoyed this ChexSystems work around and if you need any assistance with forming your Nevada corporation, be sure to contact me.
If you’re stuck in ChexSystems, and need help, check out ChexAccount.com – they offer free advice.