5 Reasons Why Avoiding Bankruptcy Accounts Are Bad for Business
Whether you’re shelving or attempting to collect on bankruptcy accounts, the following 5 business scenarios may still apply.
1 Exposure to liability and compliance issues
Inadvertently contacting customers that have filed for bankruptcy can be a costly proposition for your organization. This violates the automatic stay protection for the consumer which is an actionable offense. Originators should have a process in place to identify all known bankruptcy accounts.
2 Potential recovery losses
If like most originators, you choose to close and write-off bankruptcy accounts and then simply shelve them, you are sending hard earned revenue unnecessarily to the trash bin. It is prudent to focus on these accounts because they can have a higher expected recovery rate than other asset classes, making them more valuable. 3rd party servicers will pay you a higher dollar value to purchase Chapter 13 assets since liquidation percentages can be over 20%.
3 Costly timing mistakes
Speed is essential. Once you are notified of a BK filing, you have a 70 day window to file a bankruptcy claim. The failure to file the claim in a timely manner will likely result in the denial of your claim. Identified bankruptcy accounts where claims were not filed within the 70 day window have $0 value.
4 Diminished resource productivity
If your collections staff does not have extensive expertise in handling BK accounts, they will not achieve the same results as an outsourced team of experts in this area. Not only could your employees be working more efficiently on other asset classes, but you mitigate your organization’s risk of non-compliance.
5 Insufficient data monitoring
If your internal collection systems are not able to capture significant events, such as: bankruptcy case re-filing, case conversions, asset identifications and case dismissals, your ability to adequately collect on BK accounts is handicapped. Monitoring each of these elements on each account on a daily or weekly basis is mandatory to collect on their full monetary potential.