Creditors in the consumer credit industry face many challenges in managing bankrupt accounts. Five components to the successful management of bankruptcy cases are:
- instituting operational procedures to increase recoveries and minimize risk,
- a sound management plan,
- staff training,
- utilizing a sophisticated computer system and
- hiring outside counsel.
Procedures to Increase Recovery and Minimize Risk
Strategies to increase recoveries and minimize risk include:
- Assure continuing education of collectors and managers regarding the automatic stay.
- File proofs of claims in chapters 13 and 7 asset cases.
- Defend objection to claims.
- Defend preference actions; file proofs of claim where funds are returned to the trustee in preference cases.
- Pursue debtors in dismissed cases.
- Pursue nonfiling codebtors in chapter 7 proceedings post-discharge.
- File non-dischargeability actions under 11 U.S.C. §523 where facts and case law support non-dischargeability.
- File motions to pursue nonfiling codebtors in pending chapter 13 cases on high account balances not being paid in the chapter 13 plan.
- Audit internal procedures and outside attorneys.
- If you sell bankrupt accounts, retain accounts that offer a higher return of revenue such as non-filing codebtors and potential fraud claims.
Planning
The next component to managing an effective bankruptcy operation is planning. The bankruptcy department’s management plan should include the following:
- Establish core and non-core responsibilities for all department employees.
- Define each bankruptcy initiative with tactical and strategic planning.
- Forecast recoveries and expenses for every bankruptcy initiative.
- Track recoveries and expenses to analyze the success of each initiative.
- Communicate plans and actual recoveries and expenses to senior management.
- Allow for changes in operations to be implemented quickly.
- Monitor the status of proposed changes in bankruptcy laws for planning purposes.
- Track recoveries to allow you to negotiate the best price if you sell bankrupt accounts.
When forecasting recoveries, consider dismissal rates and conversion rates. Statistical information on events in bankruptcy cases is available from ABI, the Administrative Office of the U.S. Courts (AOUSC) and the Executive Office of the U.S. Trustee (EOUST). Also consider that if a chapter 13 case is not converted or dismissed, in most cases payments to unsecured creditors will begin approximately 25 months after the chapter 13 case filing date.
Training and Development of Staff
Tasks in your bankruptcy department may include handling pending bankrupt accounts, processing bankruptcy petitions and post-bankruptcy notices, fielding consumer counseling offers, managing litigation cases, preparing reports and auditing. Standards of measuring performance for each task should be defined, and continuing training regarding bankruptcy laws should be conducted. Managers should have the opportunity to attend seminars and conferences for educational purposes, and managers should relay this information to the staff.
Computer System
The bankruptcy department should utilize its computer system to process and manage information in bankruptcy cases. The bankruptcy system should perform the following functions:
- Ability to print proofs of claim and other documents.
- Filing electronic proofs of claim.
- Ability to track bar dates on proofs of claim.
- Ability to forecast recoveries.
- Ability to track recoveries and costs for each bankruptcy initiative.
- Multiple balance tracking per account for monitoring of payments on settled accounts.
Hiring Outside Counsel
To defend preference actions, motions for sanctions and objections to claims, you may need to hire attorneys. In addition, you may wish to hire attorneys in various jurisdictions to pursue non-dischargeability actions, objections to chapter 13 plans or chapter 13 co-debtor cases. Creditors should track expenses and results on every bankruptcy initiative taken, audit each firm’s cases and change firms if results are not obtained. ABI can provide lists of bankruptcy attorneys in each of the federal jurisdictions.
Success in managing bankruptcy cases requires commitment to your goals, the tracking of recoveries and expenses, and establishing appropriate policy, procedures and training to comply with Code provisions.