Ask The Experts: How Do Bankruptcy Information Products Work?

Question: I understand the need to get notified when my accounts are included in bankruptcy petitions, but how do the notification services work?

Answer: (from Linda Straub Jones, Collections Solutions Product Consultant at LexisNexis Risk Solutions)

It is very important that all accounts are properly scrubbed for bankruptcy filings, that is true.

Once a debtor has filed for bankruptcy they are under protection by the Bankruptcy Act’s Automatic Stay (USC Title 11, Chapter 3, Subchapter IV, Section 362). Paragraph 6 of this section states that “…any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title…” is a violation of the Automatic Stay. Therefore, if collectors contact a debtor after they have filed for bankruptcy, they are in violation of the Automatic Stay and could be fined by the court or sued by the debtor.

But filings aren’t the only event that ARM organizations need to be made aware of. Dismissals, reinstatements, conversions, notices of assets and discharges also prompt specific responses from creditors and their ARM partners.

Bankruptcy notification services can expedite the notification process. When a bankruptcy is filed, the courts must send notices to all creditors who are listed on the creditor’s matrix. The way the courts do this is to send the notification to the Bankruptcy Noticing Center (BNC) and in turn the BNC mails the notice to the listed creditors.

The BNC offers an Electronic Bankruptcy Noticing (EBN) service, which allows creditors to receive their notification in one of four different electronic ways: Email link, Email attachment, Fax or Electronic Data Interface (EDI). This allows for notices to be sent electronically rather than through the mail, saving time, paper and postage. Although EBN will not eliminate 100 percent of paper notices through the mail, it typically eliminates most of them.

You can sign up with EBN, or you can have a “middle man” be your Authorized Agent to receive the EBN feed via EDI on your behalf. As your authorized agent, a bankruptcy notification company will save you the time and cost of installing and maintaining your own EDI software.

Logistically, bankruptcy notification services typically host a client’s entire portfolio on their servers. The company can then batch process all of the accounts that fall under the contract agreement and return bankruptcy event hits to clients electronically, saving time and labor resources dedicated to opening mail and manually tracking bankruptcies proceedings.

Using this information, organizations can execute on their bankruptcy strategy. Many companies share a standard policy of removing all bankruptcies from their debtor files as soon as they receive the bankruptcy notice—simply accepting them as losses and an unavoidable cost of doing business. But statistics show that on average more than 50 percent of bankrupt accounts do have money and, therefore, can and do pay some or all of their debts. Food for thought when deciding on a bankruptcy policy.