Bankruptcy management
Track accounts through the bankruptcy process.
For borrowers, bankruptcy is a bittersweet way to absolve otherwise unpayable debt, taking a hit to their credit score in the process. For credit providers, though, it’s a risk that comes with the business of extending credit, but often brings with it a managerial headache as they handle documents, borrower communication, and court-mandated changes to the account’s terms.
To manage the process, LoanPro has fields on each account that can be updated with bankruptcy information. We also recommend using our native integration with BankruptcyWatch, which continuously monitors public court records to detect bankruptcies from your borrowers, and then automatically updates accounts with the relevant information.
The bankruptcy process
While most people think of bankruptcy as a way to get rid of debt, some types of bankruptcy are just a legal restructuring of debt. This usually means that courts will compel debtors to accept lower interest rates and payment amounts than they originally contracted to receive when the debt was issued.
Types of debt that bankruptcy won’t remove
Some types of debt are also immune to bankruptcy. These include:
- Debts that you left off your bankruptcy petition, unless the creditor actually knew of your filing
- Many types of taxes
- Child support or alimony
- Attorneys’ fees for child custody or support
- Fines or penalties owed to government agencies
- Student loans
- Personal injury debts arising out of a drunk driving accident
- Debts arising out of tax-advantaged retirement plans
- Condo or cooperative housing fee debts
- Criminal restitution and other court fines or penalties
When someone chooses to declare bankruptcy, the first step is usually to contact a lawyer and discuss what the options are. There are several types of bankruptcy that are referred to by the chapter of the US code in which they appear.
- Chapter 7: Bankruptcy to remove debts
- Chapter 9: Bankruptcy for Municipalities
- Chapter 11: Bankruptcy to restructure a company or personal estate if debts are above chapter 13 limits
- Chapter 12: Bankruptcy for Family Farmers
- Chapter 13: Bankruptcy to restructure debts through a repayment plan
- Chapter 15: Bankruptcy Type to Work with Cross-Border Insolvency
Chapter 7 and Chapter 13 bankruptcy are the most common. When most people hear the term 'bankrupt.,' they are most likely thinking of Chapter 7 bankruptcy.
Filing for bankruptcy
To declare bankruptcy, a petition must be filed with the courts with a list of included debt obligations. The debtor can choose to reaffirm a debt, which means they choose to keep paying the debt according to the original terms. This is often done when a collateral asset is securing the debt, because the asset (think car, house) would otherwise be taken away.
The courts will contact creditors to request a proof of claim. This is usually a form that includes specifics about the debt, but there are also requests for supporting documentation like a contract.
Once proof of debt is provided, the court will review the debts and create a plan. The plan may wipe out debts or restructure them. There is usually a proceeding attended by the debtor and creditors where the plan is presented.
Documentation explaining the plan is sent to the parties involved. If the bankruptcy involves a restructuring, the debtor will pay his new debt obligation through the bankruptcy lawyer, who will remit payment to the various creditors. If the debtor fails to pay, the bankruptcy will be dismissed, meaning the debts are all still owed according to the pre-bankruptcy terms.
If the debtor completes the payment plan, the courts will rule the bankruptcy officially discharged, meaning the obligations under the bankruptcy were met.
Manually tracking bankruptcies in LMS
To track a bankruptcy, navigate to Servicing > Bankruptcy inside a loan. To add new bankruptcy information, click 'Add New'.
On this page, as shown above, you can alter bankruptcy information for the loan. Here are descriptions of each option:
| Field | Description |
| Status | This can be either Active or Inactive. LoanPro will let you track an unlimited number of bankruptcies, so you can keep information about both inactive and active bankruptcies. |
| Who's filing | This is a drop-down that will show both borrower and co-borrower. Either can declare bankruptcy, but the consequences to the loan may be different depending on who declares. |
| Filing date | This is the date when bankruptcy was filed. |
| Objection deadline date | This is the deadline for you to object to the bankruptcy. An objection is an official filing that must be done through the court listed on the bankruptcy. |
| Bankruptcy chapter |
This is the bankruptcy chapter. The options include:
|
| Bankruptcy petition status |
This is a drop-down that will let you track the bankruptcy through the different stages. The options include:
|
| Case number | The case number for the bankruptcy that is assigned by the court. |
| Petition type | Petitions can be filed either by an individual (Single) or by an individual and spouse (Joint). |
| Bankruptcy process status |
This is the status of the bankruptcy. The options are:
|
| Objection status |
This is the status of any objection filed to the bankruptcy. The options are:
|
| Automatic stay status | This is the status of the automatic stay of repossession that is imposed when bankruptcy is filed. |
| Proof of claim filed status | This field helps you track whether you have proof that a claim has been filed, or that proof is still pending. Proof must be provided for official notification of bankruptcy to be considered received. |
| Liened property status | This is the status of property that may be included in a bankruptcy, which has liens against it. |
| Bankruptcy notice received date | This is the date on which notice of bankruptcy was received. |
| Proof of claim deadline date | This is the deadline by which you must file proof of your claim of the borrower's debt. |
| Proof of claim filed date | This is the date on which proof of your claim of the borrower's debt was filed with the court. |
| Bankruptcy district | This is the judicial district in which the bankruptcy was filed. |
| City | This is the city where the court in which the bankruptcy was filed. |
| State | This is the state where the court in which the bankruptcy was filed. |
| Closed reason | This field lets you enter a note about the closing of a bankruptcy on a loan. |
| 341 - Meeting of creditors date | This is the date on which you can meet with the trustee of the bankruptcy. This hearing is required by law, but creditors are not required to attend. |
| Dismissed date | If the bankruptcy is dismissed, this is the day on which it was dismissed. |
When each field should be filled out
Here are some references to help you know which fields should be filled out and when.
| Event | Fields |
| Notification of Bankruptcy Received | Status Who's Filing Filing Date |
| Proof of Bankruptcy Received | Objection Date Deadline Bankruptcy Chapter Bankruptcy Petition Status Case Number Petition Type Bankruptcy Process Status Objection Status Automatic Stay Status Proof of Claim Filed Status Bankruptcy Notice Received Date Proof of Claim Deadline Date Bankruptcy District City State 341 - Meeting of Creditors Date |
| Proof of claim filed | Proof of Claim Filed Date |
| Objection filed | Objection Status |
| Bankruptcy dismissed | Dismissed Day Closed Day Bankruptcy Process Status Status Bankruptcy Petition Status |
| Bankruptcy discharged | Closed Day Bankruptcy Process Status Status Bankruptcy Petition Status |
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