Preparing for an Administrative Tidal Wave in the ARM Industry

Consumer bankruptcy filings surged in 2009, as expected. More than 1.4 million consumer filings were recorded last year, the most since 2005, the year new bankruptcy laws went into effect.

While the economy will eventually turn around, maybe even this year, consumers will still be filing for bankruptcy protection at very high levels for the foreseeable future. In the first two months of 2010, filings were up year over year. And for 2010, we’re projecting another 1.8 million consumer bankruptcy filings.

This trend will force ARM companies to deal with more and more “hits” on their accounts. Many already use bankruptcy monitoring products, like LexisNexis Banko. But there is a new push to give clients more information, quicker. And it helps to understand how bankruptcy monitoring products have evolved to see how the new products fit into a workflow.

Originally, bankruptcy products were designed to help ARM clients avoid the Automatic Stay; they would simply notify a client when a bankruptcy petition was filed. When an account goes into bankruptcy, creditors and their collection partners must cease all communications or they can be fined. But often, creditors and ARM providers would be notified by the bankruptcy court by mail, which could take some time. Automatic notification cut out notification periods, reducing exposure to protected accounts.

Bankruptcy products evolved to help creditors make better credit granting decisions and manage a consumer’s entire portfolio across many credit products. Some large banks will extend several different types of loans to a customer – car loan, credit cards, mortgage, etc. We at LexisNexis can host a client’s entire portfolio on our servers and batch process for matches in the bankruptcy system. When we get a hit, we notify the clients and they can update their files appropriately.

The product evolution has worked well for the credit granting and ARM industries. But traditional bankruptcy products typically notified clients only at the beginning and end of the bankruptcy process, that is, filing and discharge. LexisNexis now has a product that allows users to track every event in the process.

LexisNexis® Banko® Events Monitoring tracks 540 events in the lifecycle of a bankruptcy. Clients can choose which events to monitor and on which type of filing (Chapter 7 or 13). Instead of manually searching court records services, organizations can be automatically updated when each event occurs. This helps with the most important aspects of bankruptcy management: timing. If you act too quickly on an account, you can run into legal trouble. If you’re too slow, you risk losing opportunities to recover debt.

I’ve been in the credit and collection industry for 26 years, and this environment is the most challenging I’ve ever seen. If new bankruptcy laws scared many in the industry away from these accounts initially, the current environment is forcing them to take a look at how to get the most out of their protected accounts. In the absence of a mountain of administrative work, automated solutions can help navigate this current wave of filings.

Linda Straub Jones is a Collections Solutions Product Consultant at LexisNexis Risk Solutions.