Ask the Experts: How are bankrupt accounts treated in the ARM industry?

Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry — and a sister company of insideARM.com — as well as other seasoned industry executives.

Question: What are the options for an ARM firm that has some of the accounts its working go bankrupt, and what are some of the recent trends?

Answer: (From Ed Barton, Linh Tran, and John Tu of B-Line, LLC)

Options for accounts in bankruptcy vary depending on the type of company facing the account. For third party collection agencies, the typical move is pretty straightforward: send the file back to the client.

But for the owners of the account, whether it is the original creditor or a debt buyer, the options become more complicated. Large issuers have robust operations to deal with bankruptcies, and much of the work is done in-house. Many smaller issuers and debt buyers, however, need to decide how to handle these accounts.

There are basically three things an owner of a bankrupt account can do: service the account, sell it, or do nothing.

Most large issuers service their bankruptcy accounts in-house. But many debt buyers need help with identifying the bankruptcy and then pursuing possible money owed to creditors in the bankruptcy process. Many of these firms contract with external bankruptcy specialists to help them navigate the process.

Selling the debt is also a viable option. Just like any other debt purchasing transaction, a sale sees the account leave the owner’s books so they do not have to worry about it anymore. There is a very mature debt sales market for bankrupt accounts, so finding a buyer is typically not a problem.

The last option is doing nothing. Doing nothing means literally doing nothing. Creditors almost never chose this option, but debt buyers sometimes will. They chose not to touch it for fear of running afoul of the law. They chose not to sell it because they don’t have the capability or volume to package it and market it. So they will just let it sit to eventually die.

Lately, we have been seeing a noticeable shift in strategy from sales to service. Right now, as with most debt purchasing markets, prices are deflated for bankrupt accounts. Creditors feel that they are not getting a fair price and debt buyers are finding that the secondary market is not as robust as it once was. So many are opting to service the accounts in-house or use vendors.

There are also regulatory issues that are keeping people away from the sales market. Increasing media demands are making it tougher to complete transactions. We anticipate that this will get worse over the coming months.

B-Line, LLC is one of the leading purchasers and servicers of consumer bankruptcy accounts in the United States. B-Line purchases secured and unsecured consumer debt included in both chapter 7 and chapter 13 cases throughout the nation.

Ed Barton is the CEO, John Tu is Vice President, and Linh Tran is Associate General Counsel at B-Line.