Your Member Has Filed Bankruptcy; Now What?

Road to bankruptcy.

Bankruptcies are an unavoidable part of lending. The efficiency and effectiveness of your workflow to handle them, however, could be what sets your business apart. Bankruptcy is not merely a legal classification, but a fluid and changing process designed to protect both consumer and creditor. Move too early, and you face violating the automatic stay; move too late, and you could miss opportunities to recover debt.

One of the most important parts of the Bankruptcy Act, found in Title 11 of the U.S. Code, is Section 362. This outlines the automatic stay that comes into effect as soon as a member files for bankruptcy. This stay protects consumers from creditors’ collection efforts, and once in effect, you may no longer contact your member for any reason. The one exception is if members are acting pro-se – representing themselves without attorneys. In these cases, though, you must be even more careful to avoid violating the stay; communications must be limited to the bankruptcy proceedings.