To help avoid consumer bankruptcies and improve the Bank’s procedures when they do occur, collect and analyze data on bankruptcy experience. Analyze credit applications and test the credit-scoring system using comparative data about known bankrupts.
•Disregard potentially exempt property when evaluating a prospective borrower’s financial statement.
•Do not rely on nonpossessory, nonpurchase-money liens on household goods as security.
•Do not use purchase-money collateral to cross-collateralize other indebtedness.
•Document loans fully and accurately, making sure that all liens are properly perfected.
•Take new collateral to secure a prior unsecured debt, even if the transfer happens to take place in the 90 days prior to a bankruptcy filing and may later be deemed a preference by the trustee.
•Do not rely on a lien arising from a consent judgment because a debtor has the ability to set aside judicial liens if they impair an exemption.
•Through regular monitoring, make certain that the value of collateral does not depreciate below the amount of the lien.
•On indirect loan contracts, evaluate dealer repurchase agreements and consider making Chapter 13 cases an exception to the lender’s delivery requirement.
•Consider the benefits and costs of a prebankruptcy set-off of bank accounts held by borrowers in failing circumstances.
•Avoid weak guarantors on loans because of the automatic stay that protects both debtors and co-debtors in Chapter 13 plans.
•Consider referrals to credit counseling services.
•Create a bankruptcy early warning system that flags for review all problem loans, frequent overdrafts, late payments, and excessive borrowing.
•Encourage alternatives to bankruptcy, including work-out arrangements, by sponsoring public awareness and customer projects that stress the personal disadvantages and costs of bankruptcy.
•Assert the Bank’s interests aggressively by making it known that, in appropriate circumstances, the Bank will protect its rights, object to questionable practices by debtors, and challenge discharges.