Consumer bankruptcies are particularly troublesome for a Bank because of the debtor’s ability to claim a great deal of exempt property and receive a discharge from his debts. Avoiding bankruptcies and the inevitable losses they entail is the business of the Bank’s whole staff. Almost anyone in the Bank can help detect customers who may be over their heads financially. Financial counseling, information arrangements, and other options exist to keep overburdened debtors off the Bankruptcy rolls.
Because many members of the Bank’s staff, either directly or indirectly, figure in the effort to minimize bankruptcy losses, it is important for a Bank to have a systematic internal control system. This focuses individual efforts toward achievement of the shared goal and gives the Bank an organized method of response when bankruptcy petitions are filed.
No matter how often a Bank faces a consumer bankruptcy filing, some level of training is necessary for the Bank’s staff. Whether special programs that focus on bankruptcy are necessary depends on the Bank’s size, location, and bankruptcy experience. But all banks need a way to communicate to staff members how their bankruptcy control systems work and what the employee’s role is in them. In-bank and external training programs can be used separately or in combination to serve the Bank’s needs in this regard. Ideally, training coverage should include both the general provisions of bankruptcy law and procedure and the specific workings of the Bank’s system of prevention and response.
Banks need a central point of information and activity inside the Bank to coordinate the Bankruptcy functions of the staff and, possibly, to assist counsel in the paperwork and other tasks associated with the filing.
After an in-house expert is designated, he or she should become versed in bankruptcy law, procedures, and practices. This individual handles the filing, attends the first meeting of creditors, and otherwise manages the case through its various stages, relying on legal advice throughout. Such an approach saves legal expenses and is a good use of the Bank’s human resources.
Another, more limited, way to structure the in-house expert’s role is to have the individual function as a focus of information who receives notices of bankruptcy filings, collects court notices and legal papers sent to the Bank, coordinates internal communications and information coming from the staff, and communicates with the attorney who handles cases.
In either scenario, the Bankruptcy expert should be equipped to identify and value the Bank’s collateral and, for an unsecured or under-secured loan, be able to estimate whether the case will be “no-asset case” or whether the Bank can expect a dividend and approximately how much. These preliminary judgments are crucial in deciding what response is appropriate.
A routine, but not to be overlooked, task associated with the Bankruptcy control system is that of scanning local newspapers — both the commercial papers and the regular dailies — for notices of bankruptcy filings. The in-house bankruptcy expert incorporates this task in his or her daily routine or assigns it to a member of the loan department who has access to a list of the Bank’s borrowers. Since the automatic stay against collection activity and repossessions is triggered immediately upon the filing of a bankruptcy petition, it is important for the Bank to receive the earliest possible notice of a filing. Searching the public notices is the only way a Bank can avoid running afoul of the automatic stay and, in doing so, getting off to a very bad start in a bankruptcy case. While only willful violations can result in punitive measures, violations of the automatic stay must be avoided.