My column often uses the term “Bankruptcy Specialist,” and some readers have asked that I explain what I mean.
Bankruptcy law and procedure are technical and complex. Moreover, the real adversary in a bankruptcy case is often not themember. Rather it is the member’s attorney, who is well schooled in bankruptcy law and practices it daily.
Obviously each credit union must address this treshhold question: Should a credit union employ an attorney in a bankruptcy case or handle it in-house through a nonattorney?
A credit union, of course, would do well to compete in this environment through its own attorney, but credit unions often feel that the cost of legal representation does not justify it. (Large credit unions with numerous bankruptcies have the ability to negotiate flat-fee arrangements that can make widespread use of attorneys very appealing.)
My cost-benefit philosophy has long been to have nonattorney employees handle bankruptcy matters in-house when they can do so competently and legally, and to use outside counsel when the potential benefits outweight the legal fees to be incurred. (As far as the legal requirement, remember that it is not the unauthorized practice of law for a credit union employee to question the debtor at the Section 341 meeting and to negotiate a reaffirmation of release of collateral.)
My approach is generally not practical for small credit unions having only one or two bankruptcies a month, because bankruptcy competence is difficult for them. Unfortunately, small credit unions generally overspend on attorneys or poorly handle bankruptcies themselves. The solution I have been preaching for years is to have small credit unions send their cases to a CUSO created for handling bankruptcies. I am aware of at least two cities, Indianapolis, Indiana and Rockville, Maryland, that have such a program.
Credit unions with more than a few bankruptcies per month can afford tohandle many bankruptcies in-house if they have the right person in charge and if the person is well trained.
Who is the right person? This is my job description for the Bankruptcy Specialist:
1. Intelligence (detail-oriented, accurate, logical).
2. Flexibility (willingness to change, interest in new ideas).
3. Open-mindedness (inquisitive).
4. Organizational and communication skills.
5. Creativity (imaginative).
6. Positive attitude (enthusiastic, energetic, congenial).
7. Willingness to keep up with new bankruptcy developments.
8. Assertiveness, aggressiveness (not easily intimidated in Section 341 meetings).
You will note that collection experience is not included. The qualities in my job description are far more important than collection experience, and I want to avoid application of the Peter Principle at all costs. Some credit unions unfortunately do not go beyond the collection department in their search for a new Bankruptcy Specialist. That is a mistake.
In addition, I think that the Bankruptcy Specialist need not report to someone in the collection department. The Bankruptcy Specialist should report to someone who is well informed about bankruptcy law and procedure, regardless of the staff position he/she is holding. If the supervisor is uninformed, how can he/she know whether the Bankruptcy Specialist is adequately performing? Such a supervisor has difficulty in judging bankruptcy performance, and, even worse, can be subjected to double talking from staff members (and, dare I say it? – outside counsel) who might be underperforming in their handling of bankruptcy situations.
It may sound burdensome to have a well informed supervisor of the Bankruptcy Specialist, but you cannot believe what recoveries I see in credit unions that are following this approach. The well-informed supervisor knows what performance to expect from the Bankruptcy Specialist and bankruptcy counsel, and he/she knows how to measur it. How can you manage what you cannot measure? How can you measure what you cannot even comprehend and describe?
By William R. Mapother
