Personal bankruptcy
Personal bankruptcy is a court or out-of-court procedure in which an insolvent individual's debts are restructured or discharged under legal supervision.
General principle
When a person cannot pay all their debts, the law in many countries offers a bankruptcy procedure. It usually includes a review of assets and income, a possible repayment plan, the sale of some assets and, in the end, a discharge of the remaining debts. Creditors take part in the procedure and receive payments in the established order.
Once the procedure starts, individual collection is usually stayed: claims have to be filed within the bankruptcy. Thresholds, deadlines, the role of trustees and creditors’ rights are set by local law. Rules depend on the country, so check the course of action with a lawyer.
Why it matters
For a creditor, a debtor’s bankruptcy changes everything. Calls and messages demanding payment after the procedure has started may break the law. A missed deadline for filing a claim may cost you the right to any payout.
In a portfolio, bankruptcies are a separate stream. Such debts need to be identified quickly, taken out of regular work and handled under special rules.
What to do about it
Appoint someone responsible for bankruptcy cases and set a procedure: how the company learns about a case, who verifies the information, who files claims and by when.
Stop regular collection for such debtors immediately, in every channel and at every agency.
Track payouts from procedures and final write-offs: they affect the loss forecast.
The typical mistake is continuing standard reminders to a debtor in bankruptcy. This creates legal risk and brings no money.
More in Signals
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