Bankruptcy
Overview and Profit
Bankruptcy is a booming business. In the information to
follow, one will discover that bankruptcy has had an upward
swing since 2000. It appears that whatever social or psychological
stigma once associated with personal bankruptcy has decreased
significantly over the years. Bankruptcy has become an
accepted alternative for debtors who want to resolve their
credit problems. These debtors range from individual consumers,
small businesses to large corporations
One of the major activities of any bankruptcy production
environment is the management of paper-flow and the
utilization of staff hours across that flow. It is vital
that a Bankruptcy Department monitor and control the
flow of business documents and ensures that the proper
actions are performed on the basis of information contained
in the documents by the right person at the right time.
The coordination of available FTE and paper is a critical
priority within any bankruptcy collection environment.
Business practice has found that bankruptcy lends itself
to systematic automation based upon its repetitiveness,
predictability and task orientation. It is also extremely
important to control activities and tasks within specific
timeframes and information in order to proceed to the
next steps within the workflow. Collection software
is an excellent tool for managing the production and
accountability within a department. Bankruptcy operations
become even more efficient when the organization’s
collection software is coupled with a bankruptcy management
software tool. This helps with the total management
of the data, production and FTE on the pre and post
side of the Claim filing process.
A directed and concerted bankruptcy portfolio management
recovery program can provide stable and vital collections
to the organization’s bottom-line results. It
is an area of collection opportunity often overlooked
by a Creditor. It has often been said in many collection
environments, “…why throw good money after
bad money…they are bankrupt!” If that were
really correct, why would any Creditor want to collect
on their receivables? As we know, a substantial number
of debtors pay!
Bankruptcy–
‘SHOW ME THE MONEY’
The advantage with bankruptcy collections is that you
have a facilitator – the U.S. Bankruptcy Court
and Trustees under the direction of the U.S. Trustee’s
Office. It is the Trustee’s court charged responsibility
to collect assets and monies and return them to the
Creditor. It is extremely important to understand that
the Trustee is not responsible for how much the Creditor
gets paid – that’s the Creditor’s
responsibility. So, the bottom-line to a Creditor is,
manage your bankrupt debtors or the debtor’s attorney
will manage you!
Bankruptcy proceedings require immediate and continued
attention by a Creditor, if the Creditor hopes to have
its claim satisfied to the fullest extent possible.
The approach that a Creditor takes in a bankruptcy case
can make all the difference in the world as to their
eventual dollar outcome. The outcome from a Creditor
perspective is $$$$ received/recovered.
Bankruptcy has a set of ‘game rules’, in
which the players (Creditor, Debtor, Creditor Attorney
& Debtor Attorney), the court procedure/process
(rules of the game), and a playing field – the
U.S. Bankruptcy Court with designated Division/District(s)
for each State – all participate. As in any game,
rules and most importantly – strategies apply.
It is necessary for a Creditor to understand their options,
know the strategies available to them, execute and follow
through on the play. Timely execution by the Creditor
greatly improves the chance of achieving monies recovered
across their bankruptcy portfolio.
In theory, bankruptcy law is intended to balance the
power between debtors and creditors; in practice, the
balance may be skewed to one side or the other. The
prudent Creditor needs to protect itself in the world
of bankruptcy by ensuring that the scale does not tip
too heavily toward the debtor.
BANKRUPTCY CHAPTERS
BY THE DOLLARS
Chapter 13*
The statistical data supports the conclusion that Chapter
13 Plans are the Creditor’s best hope for collecting
dollars from a Debtor. On the disbursement side of a
Chapter 13 case, the statistical data for 1990-2000
indicates that Plans average paying 53%-58% to secured
creditors, between 9%-12% for priority creditors, and
unsecured creditors between 18%-22%. The average per
Chapter 13 case yield in the Year 2000 was $10,039 with
$8,678 going to Creditors and $2,182 going to Unsecured
Creditors.
Chapter 7*
The statistical data for Chapter 7 Asset cases concludes
that very few make dollar disbursements to Creditor.
If the Trustee does make distributions, they tend to
come from cases that involve large commercial debtors.
These debtors comprise approximately 1% of Chapter 7
filings. The vast majority of Chapter 7 cases yield
no assets.
Chapter Dollar Summation
There is little doubt from a Creditor bankruptcy collection
perspective, that Chapter 13 Plans support a continuous
revenue stream of monthly bankruptcy dollars collected.
Therefore, it is imperative that Creditors file Claims
timely and that Debtor’s Plans are monitored on
a timely basis as well.
Conclusion
There are no easy solutions to creating efficiency and
profitability within a bankruptcy collection operation.
It is hard work, but extremely important to leverage
your investment in people and technology. With each
new methodology or technology you implement, it will
bring you closer to improving dollars to the bottom-line.
It is also important to create as much continuity or
‘seamless’ continuity between multiple technologies
as possible.
* Executive Office for the United States Trustees -
Statistics
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