Garnet Capital Advisors Blog

Financial institutions sell charged-off accounts for many reasons. Accelerating cash flow, right-sizing FTE, and adhering to the ever-changing compliance landscape are just a few of the reasons. A prudent way to enter the secondary market for charged-off loans is to select consumer Chapter 13 bankruptcy accounts. The two main reasons to start with these accounts: 1) All consumer contact is through the courts and attorneys, thus avoiding FDCPA violation concerns, and 2) The market for these accounts is very efficient, affording the seller immediate cash-flow that approaches the historical cash collections, per account, over time.

Chapter 13 Asset Sales

Consumers who have financial income and means to repay creditors enter Chapter 13 bankruptcy plans. These plans are agreed upon by the parties and approved by the courts. The borrowers pay the court, which disburses portions to each creditor. The performance of these accounts has become highly predictable, allowing buyers to sharpen their pencils. Buyers have also become extraordinarily efficient in processing these accounts. Their lower cost of service translates to higher pricing for sellers.

A Chapter 13 bankruptcy is like a court-mandated plan to pay creditors and free the account holder from collection actions.

Selling Chapter 13 Bankruptcy Accounts Generates Cash Flow

The process of servicing and collecting Chapter 13 accounts is a specialized and costly process for most lenders. The long duration of the low payments in an average plan also eats into returns. Selling the account is an opportunity to accelerate cash flow and decrease servicing costs.

Purchasers of Chapter 13 accounts have amassed large portfolios, use technology developed specifically for this asset, and have driven down their cost to collect much lower than any lender can achieve. Sellers of this product reap the benefits of this in the form of a high purchase price.

Bulk and Flow Sales

It is also possible to sell consumer bankruptcy accounts in both bulk and flow transactions. Bulk sales involve bundling the current inventory of bankrupt accounts to sell in one transaction, typically to one buyer. These types of sales decrease servicing costs and provide an immediate boost to cash flow. This can be extremely valuable if an institute is looking to expand or create cash reserves.

Flow sales are when sales are arranged periodically, usually monthly. The benefit of this type of transaction is the minimal FTE needed to support this as compared to servicing the accounts. Sales can be arranged where the buyer files the proof of claim documentation, further saving costs and increasing price.

Selling Chapter 13 Bankruptcy Accounts Increases Compliance

Compliance is time-consuming, with a high potential for consequences should any aspect of bankruptcy account compliance fail to be met. However, the compliance requirements for selling bankruptcy accounts are much lighter, and selling a bankruptcy account quite neatly removes all concerns about collections and management compliance, replacing those concerns with available cash flow.

Safe Financial Asset Sales

When a bank sells consumer debt accounts, there is typically a certain amount of risk and hassle for the buyer. Collections, debt acknowledgment, and regulatory management are among the top problems with consumer debt sales.

However, Bankruptcy accounts immediately resolve many complaints raised regarding more typical debt sales. The debt is already acknowledged, and there is an agreed-upon repayment schedule in place. This makes buying bankruptcy accounts more predictable for the buyer. The collections and repayment schedules have already been negotiated. Therefore, selling is more efficient because buyers take less risk and will buy these financial assets with greater confidence.

More Efficient Use of Staff

Managing Chapter 13 bankruptcy accounts and caring for the compliance requirements necessary for each one can be time-consuming for staff within a financial institute. Many full-time employees may be occupied just with the maintenance of these accounts. Likewise, ensuring that they meet compliance for each account in the bank's full bankruptcy portfolio may require more time with frequent audits and policy implementation.

By selling bankruptcy accounts to a third party, banks gain the ability to make better use of their full-time employees. They can redeploy those once tasked with bankruptcy management to other assignments.

Brokering Your Chapter 13 Bankruptcy Account Sales

If your bank or financial institution is holding onto Chapter 13 bankruptcy accounts, the time may be right to sell to a third party. The question is how to identify the right buyer or buyers for your bankruptcy accounts. After all, you are not only looking for the best price but also relying on your buyers in this situation to maintain full compliance and proper account management as the accounts transition into their control

While your buyer gains a repayable financial asset, you gain the freedom to focus less on bankruptcy compliance and repurpose your staff to more diverse tasks. 

The key is to find a loan broker like Garnet Capital Advisors. Garnet has completed hundreds of these sales and has the market experience and expertise to ensure a successful sale. The remediation and presentation of the data in this type of sale is not an insignificant hurdle, Garnet handles that process. The documentation of the sale with a market-acceptable sale agreement is also a key factor in achieving goals. Many sellers lose value in the negotiation of stipulations in the sale agreement. Garnet understands how the words in an agreement can be used for economic benefit, and will advise accordingly.

Connected to the most extensive network of buyers in the industry, we can help you find the right buyer for your Chapter 13 consumer bankruptcy accounts. Then, we'll walk you through comparing offers, cultivating buyers, and selecting the right opportunities for either bulk or flow bankruptcy sales. Contact us today to learn more.