Comprehensive Planning and Training Among Keys to Managing Bankruptcy Cases

Comprehensive Planning and Training Among Keys to Managing Bankruptcy Cases

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Creditors in the consumer credit industry face many challenges in managing rising bankruptcy filings. Five components are critical to managing creditor rights recoveries: (1) operational procedures to minimize expenses, (2) a sound management plan, (3) staff training, (4) a sophisticated computer system and (5) hiring outside counsel when needed.

Procedures to Increase Recovery and Minimize Expenses

The successful bankruptcy recovery department will establish projected returns and expenses for each collection initiative. Operational procedures should include:

  • Assure continuing education of collectors and managers to avoid automatic stay violations. This education includes on-site presentations by bankruptcy attorneys and trustees.
  • Mail and ensure proofs of claims are filed in chapter 7 asset and chapter 13 cases prior to bar dates.
  • Defend preference actions and objections to claims. File proofs of claim when funds are returned to the trustee.
  • Negotiate the best price for selling bankruptcy accounts by knowing the value of your bankruptcy portfolio and potential returns over a minimum of three years.
Strategies to increase collections include:
  • File fraud actions under 11 U.S.C. §523.
  • File request for notices after the initial petition is received to ensure post-petition mail is sent to a designated address (invest in a mail-opening machine that does not slice documents and checks in half!).
  • Pursue debtors when dismissal orders are received to request repayment and determine if the dismissed order was with or without prejudice.
  • Pursue collection efforts against non-filing codebtors in chapter 7 proceedings in accordance with federal and state law.
  • File motions to pursue non-filing codebtors in chapter 13 proceedings if the proposed plan is less than 100 percent.
  • Assist U.S. Trustees on their inquiries.
  • Audit final trustee accounting reports.
  • Perform periodic audits of your outside attorneys. Audits are useless unless you understand what you are looking for.

While projecting expected returns, consider that returns vary in timing. For example, if a chapter 13 plan continues without being converted or dismissed, payments to unsecured creditors can take approximately 25 months after the chapter 13 case is filed. While defining expenses, include operational enhancements planned and staffing needs. A definite key to success is helping senior management understand the return/expense plan. Most internal bankruptcy departments get caught in time delays or budget cuts due to ineffective communication between line and senior managers.

Creditors must track expenses and results on every bankruptcy initiative taken regardless of how legal representation is determined.


The next key component to managing an effective bankruptcy operation is planning. The bankruptcy department's management plan should include the following:

  • Defining a mission for tactical and strategic planning so changes to operations, when needed, are implemented without long delays.
  • Developing expense-return plans for every bankruptcy initiative.
  • Establishing core and non-core responsibilities for all department employees.
  • Developing short- and long-term training programs for key associates and senior management.
  • Hiring experienced bankruptcy attorneys nationally to handle litigation matters and ensure they have solid track records of positive results.

Defining a mission for short-term tactical planning and strategic long-term planning allows for internal changes, if necessary, to accommodate trends. While bankruptcy is a national law, it is practiced at a local level. Local rules and case law may require different approaches to initiatives in different regional areas.

Training and Development of Staff

Effective and continued training of staff is a major component to the success of a bankruptcy department. Most bankruptcy departments are segregated to processing bankruptcy petitions, processing post-bankruptcy notices, managing litigation, reporting and auditing. Each position must be clearly defined and standards of measurement put into place. Bankruptcy processes usually are repetitious regarding the processes of bankruptcy petitions or post-petition notices. Many creditors spend little or no time training in these areas. Creditors, however, should train in these areas to ensure greater profit and to minimize expense. Managers should have the opportunity to attend seminars and conferences while having external bankruptcy professionals conduct on-site seminars and training as well.

Computer System

The bankruptcy department for a creditor in the consumer credit industry must utilize a software system to effectively manage information in bankruptcy cases. Often, the creditor's main computer system cannot adequately manage bankruptcy information. The system is usually dedicated to managing pre-bankruptcy, in-house recoveries or agency placements. Dedicated bankruptcy case-management systems aren't luxuries—they are necessities.

One example is the implementation of technology enhancements that reduce the need of adding staff when bankruptcy volumes increase or that prevent acceleration of charge-off resulting from electronic noticing. Another example of the failure of the main system and the case-management system is the inability to track multiple account balances. Account balances at issue in a bankruptcy case may vary due to the current account balance owed versus the balance at the date of the bankruptcy filing or a settled balance. If payments are made after the bankruptcy filing, the balances at issue in the case should reflect the reduction in the system of record and the bankruptcy case-management system.

Your bankruptcy software system should include the following features:

  • multiple balance-tracking per account,
  • automatic application of the expected return in a chapter 13 case to forecast future recoveries,
  • bar date tracking alerts,
  • correct identification and tracking of non-filing codebtors in chapter 7, 11, 12 and 13 cases,
  • ability to track guarantors in business bankruptcies and
  • ability to print standard form letters.

Hiring Outside Counsel

When hiring outside attorneys, look at the firm's experience in representing creditors in bankruptcy cases. Look to establish a partnership with a firm handling a large volume of cases. Some creditors refer cases to firms that centralize their bankruptcy cases on a national or regional level if the volume of work is too high for the creditor to manage the litigation internally. Creditors must track expenses and results on every bankruptcy initiative taken regardless of how legal representation is determined.

Legal costs can be managed effectively if you only track cost and revenue. Make changes when needed.


Success in managing bankruptcy claims requires commitment to establishing goals, controlling expenses and training. Without training and ongoing education of the bankruptcy process, results will show lower revenue, increased costs and higher charge-offs.

Journal Date: 
Sunday, May 1, 2005