Heading Off Bankruptcies

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Heading Off Bankruptcies - And Worse

"People have really become acclimated to home equity loans," notes another West Coast credit manager. "They can put all their debts together and deduct the interest from their taxes. Instead of having a number of bills, they're all consolidated under the umbrella of real estate."

Unfortunately, however, this umbrella often leaks, and the customer starts to miss payments. People can usually avoid losing their homes under regular bankruptcy. In an equity loan, the debts are secured by the property, and so the customer faces foreclosure. What can you do to help customers avoid this?

"First you've got to realize some of your best customers can cause the biggest problems," says the CM. "They want to take care of their debts, but if they get into a bind, they might panic. They won't talk to you. They'll head straight for a bankruptcy attorney."

What you must do, he continues, is watch closely for two signs: (1) delinquency and (2) increased borrowing. Then take steps to head off problems by referring people to consumer counseling.

"It takes salesmanship," he says. "You have to point out the advantages of counseling. The counselors will come up with a fair plan. There won't be any credit calls. The credit rating won't be ruined. The salary won't be garnished. "With the right approach, you can sell customers on a solution to their problems and also instill a measure of pride," he adds.

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He also believes in giving customers a little "breathing room," but stresses that it should be a trade-off. "Don't just give something away. If a customer comes up with some collateral or a cosigner, then you can modify terms."

Timing is the key. You should make concessions before the debt has gone too far.

He suggests that credit grantors keep each other informed, so that customers can be directed to counseling before it is too late.

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.