1. Claims Take Too Long
Claim filing should be automated. This is possible with select integration partners, using our API, and soon through our website. If you haven't automated your claims filing, aim for less than 15 minutes of processing per claim. Reduce duplicate effort by pre-populating general fields. Organize account information in a single, organized view for servicers to quickly fill out the remaining data.
2. Lenders Choose the Wrong Bankruptcy Strategy
Choosing the wrong bankruptcy collection strategy is a massive failure for many lenders. The first step to selecting the right strategy is knowing what your options are. Here is a list of standard options:
- Write off bankruptcy debt.
- Monitor for dismissals, collect on dismissals, and write off discharged debt.
- Sell bankruptcy debt.
- Hire a bankruptcy debt servicing company for bankrupt accounts.
- File claims where relevant, internally service bankrupt accounts.
Several factors go into a lender’s decision on which method(s) to use. Generally, those factors are case volume, loan type, loan balance, and case types. Choosing the right strategy can reduce risk and increase collections for bankrupt accounts. We can walk you through our strategy calculator during a free consultation.
3. Dismissed Cases Aren't Identified
In many districts, more than HALF of Chapter 13 cases get dismissed due to non-compliance or other reasons. Debtors will file knowing they can get their bankruptcy dismissed and rid themselves of a large portion of their debt because many creditors don’t follow up after the bankruptcy filing. Monitoring active bankruptcies allows you to know when critical events such as dismissals occur and immediately take steps to collect debts.
Debtors can also refile after getting their bankruptcy dismissed. Refiling is very common. Savvy creditors will strategically use a tool to monitor for new filings and know when to stop and start collections activities. BankruptcyWatch is one provider that allows lenders to automate collection activities so that lenders can be confident they are consistent, scalable, and legal.
4. Incorrect or Incomplete Bankruptcy Forms
Another issue is the failure to use the bankruptcy forms and disclose information consistent with the Bankruptcy Rules.
A claim is a statement to the court that asserts the creditor is entitled to payment. Depending on the claim, it consists of using a form and attachments and other documents. A claim and the attachments are intended to prove the existence and correct amount of the claim.
Official Form 410, published by uscourts.gov, is recommended to be used. However, Fed. R. Bankr. P. 3001(a) allows a different form as long as it substantially conforms to the official form.
There are multiple rules concerning the required information and forms to be used. These are listed in Bankruptcy Rules 3001 and those that follow it.
Creditors who fail to disclose all information may be subject to sanction. Bankruptcy Rules 3001(c)(2)(D) and 3002.1(i) allow a court to preclude omitted information as evidence and award other relief, including paying the debtor’s attorney’s fees caused by the failure to include the required information.
5. Inconsistent Due Diligence
The accuracy of the information included on a proof of claim form is essential. It is relied upon by the Court and all interested parties.
This is an official document filed with the federal Bankruptcy Court and verified as accurate under the penalty of perjury. The statute found at 18 U.S.C. § 152 makes it a crime to knowingly and fraudulently make a false oath or account or file a false proof of claim. Furthermore, Bankruptcy Rule 9011(b) requires that representations to the court be certified by a person after a reasonable inquiry. Rule 9011(c) addresses sanctions for violation of that rule.
Inconsistencies and errors within the document also expose a creditor to objections. For example, the attachments to a proof of claim should support, not contradict, the amount owed on the claim. If a claim indicates that the amount owed includes interest, penalties, or other charges, a statement must be attached to the claim itemizing those charges.
Further, inconsistencies and errors with other statements by a creditor are problems. Debtor’s attorneys check statements and bills the debtor received prior to bankruptcy with the claim for consistency. Ensure that any claims filed are 100% accurate.
In re Jimenez, 487 B.R. 543 (Bankr. D. Col. 2013) is an example of a bank filing inconsistent due diligence. The bank listed fees of $14,327.59 without correct itemization. As a result, the Court dismissed the fees and ordered the bank to pay the debtor’s attorneys’ fees incurred in objecting to the claim.