Bankruptcy is always a hot topic among consumer creditors. After all, it is the “necessary evil,” which all lenders learn to address—sooner or later. I want to take a moment to address the aspect of bankruptcy being used as a sword and not a shield as it was intended by Congress.

Often in a collection context, but sometimes in connection with extending credit, the topic of bankruptcy comes up in conversation with the borrower or prospective borrower. It is very important for the CSR to hear exactly the words spoken by the borrower. That is, there is a major league difference between “I filed bankruptcy” and “I am going to file bankruptcy.” Grammar, it seems, really does matter!

When a customer asserts that he or she has filed bankruptcy, a stop sign should be the first thought that comes into our heads. Even if we are dubious about the fact, if it is stated affirmatively by the customer that she has filed, then collection action should cease, as should any requested refinancing. The burden shifts to the creditor to determine the factual accuracy of the customer's assertion. The repercussions of proceeding with the customer under this circumstance is too often payment by the creditor for a violation of the “automatic stay.” In this scenario, it would be prudent to gain as much information as possible, including the name of the customer's attorney, the case number, the date of filing, and in which bankruptcy court the filing has occurred.

Contrast that statement, though, to the customer's statement that “I am going to file bankruptcy.” This statement should invoke a yellow light, but not a red light. In the collection context, if the repo truck is on sight and the vehicle is hooked, it is likely that the customer's assertion is being used to stop the impending repossession. If indeed the repossession is accomplished before the bankruptcy is filed, there has been no violation of the automatic stay. Similarly, in the refinance scenario when the customer has said that he is going to file or intends to file, the making of the new loan is not a violation by the creditor. However, it still may not be a good business decision to proceed.

Bankruptcy was intended as a shield to give borrowers a second chance. It was not intended as a sword by which borrowers could attack their creditors. Unfortunately, we see bankruptcy used too often to do just that.

Practice pointer: Pay careful attention to the words of your customer. The past tense and the future tense result in very different outcomes.