#364 - What If They File Bankruptcy?

This is the Independent Dealer Podcast, education.

By Dealers for Dealers.

Now here are your hosts, Luke Godwin and Jeff Watson.

Hello and welcome to the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. Tis that time of year, Luke. Not only is it tax time, which I love, because deal, all our customers have money in their pocket. Right. But they also got money in their pocket to pay the attorneys and you know what that means.

Yes. BK filings, you know, they don't really, it doesn't really happen till later in the year, Jeff. So they take all the money they have now and they buy the biggest thing they can and then four or five months later they, they decided they need to file bankruptcy. And today we're talking all bankruptcy with Louis from Tribute Capital. And you know, their main focus is collecting and helping dealers either sell or collect BK accounts. And if you're like me, we've been in the business a long time, we've always serviced our own BK accounts, but there's definitely value in getting rid of them because I see what happens to some bankruptcies after a while, but we've had, we've had good luck keeping them. A lot of people sell. Most dealers sell them, it seems like.

Yeah. Hey, yeah, thanks for joining us. Now, just as an intro, will you give the dealers listening, maybe some that are new or young or just kind of getting into the buy here, pay here industry, they're going to be getting these bankruptcy notices. And it is such a man. I'll tell you what, like I've been in it for 25 years and I still don't understand some of the loopholes and when I'm supposed to file and what I'm supposed to file. Can you just give us kind of a broad overview of the two basic bankruptcies that these dealers are going to see?

Yes. Thank you, Jeff. Thank you, Luke. So most of the time within the credit issuance on the subprime auto site, buy here, pay here, you're going to get a Chapter 7 or Chapter 13. A Chapter 7 is a quick remedy within six months to effectively discharge that debt, where you'll see a lot of credit card debt and unsecured debt. Within that, you're able to move an asset into that seven and then at that point, it's really a function of whether the consumer would like to retain and pay or they keep the asset, reaffirm the debt, then maybe pay you directly. So maybe the pressures of filing bankruptcy were not from being behind on a car note, but a potential wage order or garnishment. So in that case, within six months, that case is resolved and discharged. And then there's some decisioning on your end as a credit issuer or dealer as to whether you allow that consumer to keep the asset. Typically you can seek relief from stay if they're behind or they don't have insurance, or you can reaffirm the debt dependent on leverage or loan to value or if the asset they're upside down with negative equity, you can make that determination.

Seven.

Yeah, seven. Seven, seven just cost me $6,000 in attorney fees.

What?

Yeah, it was a nightmare. He, he did it. Was it called pro se is when you do it yourself. And I guess he went to every YouTube video on the planet and, and the judge was this liberal judge that had just come to South Carolina from, from New York and wanted to give everybody a chance. He broke so many court orders and she just let him continue to drive. Finally, finally she put the hammer down five months later and so many court appearances that he didn't show up for half of them. And, and she just let him kept right. And it was a six thousand dollar attorney bill. Oh my God. I want to poke my eyes out, Louis boy.

We, we feel that and see that quite frequently. So what we've actually called the seven within our operation is an automatic repo. Because what's happening now is attorneys who are representing consumers who are filing bankruptcy are saying put the intent to reaffirm, don't ever make a payment and by the time the issuer realizes it, you'll be discharged and just expect the repossession. So within that case, you can't collect that debt post discharge unless that reaffirmation has been executed and filed. And in the event of a pro se debtor, there are actually within the 94 bankruptcy jurisdictions, there are judges who will, who will give pro pro, say debtors access to credit counseling or attorneys that help them build these schedules and ratios and, and drag the process along where the only relief for a creditor is to hire counsel. And then you just go through the motion war where you're just perpetually paying this fee. Whereas it almost makes sense at some point to run the cost benefit to let the consumer flounder as a pro se or their own attorney and let it dismiss unless you have a high value asset that you want to protect.

And that's what I should have done. And I've been through this. We've been doing this for 40 years. So I've, I've been through this situation. This was the first time and it must be something New that consumers are seeing on Tik Tok or whatever that, that allow them to, to, to learn how to work the system. But it was, it was horrible. This, I mean, yeah, I don't want to do that again.

I always look at a, I always look at a number. Seven is like, the way I keep them separated is like, I think a seven is like lucky. I like a set because I'm like, look, they either reaffirm it and keep it or they give it back. Right. Those are the two options in the seven. From what I understand. Now, they can stall like you're talking about. They're going to stall and ride you out. Maybe. But now, 13, that's the unlucky number.

Yeah, 13.

I, I absolutely hate, hate a 13. Am I right or am I wrong? What's the difference between a 13 and a 7?

So the 13 is what we call a WEP, a wage earners plan where they're effectively using the bankruptcy court, the trustee and the judge as a money manager. So within the bankruptcy of a Chapter 13 filing, you can have from 36 up to 60 months. Interestingly enough, for a lot of dealers, what happened during the pandemic is the CARES act allowed for modifications of that 60 month max term to 72 months. So in a 13, the consumer pays the trustee, the trustee takes those funds and allocates it to the creditor committee. Most of the time the attorney and the trustee and secure creditors are paid first. Then it moves into a second tier of payments that typically flow through to domestic support obligations, child support, IRS mortgage arrears are kind of in that first bucket and then unsecured debt like credit card, old medical telephone bills in that last stage. Well, interestingly enough, with a 13, most of the time, if you took all your dealer base and just took a very weighted average, they're not filing bankruptcy immediately after purchasing the car because of some protections within the bankruptcy code. But on average right now it's about 13 months from the time they bought the car originated before they filed the bankruptcy for protection. The 13, if you just take a buy here, pay here asset, where you have that exposure is the hopes that it lasts the life of the bankruptcy. So bankruptcies on average now are about 52 months, whereas six, seven years ago was about 40 months. So they're effectively amortizing the loan with an incremental 12 to 20 months from origination, where your typical term is 40 to 45 with the, with the lower ACV stuff. So your hope is that that asset makes it through the life of the bankruptcy. The other driver there is if you're a buy here, pay here whose interest rates are, we'll call 20% on average. The bankruptcy court redefines that value in a till rate. T I L L so they've been pretty delayed in adjusting till to kind of transition to a more SOFR related environment. We're starting to see some corrections and upticks there. But for the longest time the average bankruptcy rate paid or assigned by the trustee and the judge within those bankruptcy plans that are filed by consumers attorneys was about 5% nationally. So you can see 5% over a 60 month plan as opposed to 20% over a three and a half year. Note that you finance where there would be a bit of a delta in that interest income component.

We, we were seeing.

Hey everybody, real quick, I know we're talking about BK's and making sure you get your money. The one most important thing is you've got a good payment processing platform to get your money. And of course the team over at Blitzpay is the ones that Luke and I use to make sure that our buy here pay customers are paying us easily and in quick order, quick time.

Yeah, man, I tell you, it's still, it still kind of blows my mind. We've been, we've been using BlitzPay for about two years but how easy it is for someone like me to use the software and how it talks to my DM dms so well. So Blitzpay is the people we use and it saved us a ton of money across the board and it's helped us collect more money. So reach out to them and if you can't get in touch with them, email me or Jeff and we'll put you in touch with them.

Absolutely.

Yeah. We were seeing like eight and a half percent. Is, is that not. Is is that gone away?

So slowly it's transitioned to eight and a half which is kind of that prime rate. But a lot of the jurisdictions are behind because it, when you increase rates just like a loan you're underwriting changes how the amortization of the loan and increases that loan payment that needs to be made into the bankruptcy to distribute to creditors. So if you're a trustee and you'd rather have a 5% rate that makes the bankruptcy plan feasible over 60 months, you're more likely to approve that than having a rate at 8 and a half percent where it changes the feasibility and it draws that 60 month window out to a 65 month window that you can't file.

Yeah, so that's In a third. And these judges don't care. Right. They're going to cram. They're going to cram down your interest rate. Now, do they also cram down your principal balance? Because I've seen that where I'll send in a notice or a filing and I'll say, well, the guy owes, you know, 13 grand. And they're like, no, he doesn't. He owes six. And you're like, wait a minute. What?

We haven't seen that lately.

So that's called the nine. Yeah. You're lucky then, because that happens quite a bit. What you have that's called the 910 rule. If the, if the asset was financed within 910 days of filing, you are required. Now, there's some ambiguity to this. Even though required, we all know what that means to pay the balance in full. So within the 94 bankruptcy jurisdictions, even though it should be one federal code, it's interpreted differently.

Yeah.

There's what we call plan controls, where if the plan is says it's a $6,000 value or cram down, we call it 502 hanging language and they really owe 13. You're going to be confirmed at six secured and seven unsecured, or whatever that difference is. But there are also districts within the court that say you can file for 6 as the cram value, but if it's financed within 910 days, we're going to adjust it at confirmation for you to pay it in full, whether it's the Southern district of Georgia or the one district in Utah or in the, in the Carolinas where you have the eastern district, the middle district. So there is no one implied blanket assumption you can make. It's a very granular and fragmented market.

That's. And that's wild to me that if it's bankruptcy, it should all be the same. Right. I mean, you know, most other thing that I see is how long it takes from the time a person behind file bank files bankruptcy to the time we get our first payment. I'm looking at some recencies here of almost a year. Is that normal?

Yeah. So particularly in cases where you have mortgage arrears, where the trustee is naturally going to protect the consumer from that perspective, so they have a home that's always the driver within some of that. The other thing is if you have a bankruptcy plan that is somewhat convoluted from an objection standpoint or a lot of creditors are positioning for those dollars, whether it's objection to confirmation because they want an increased monthly payment in Utah, you may have that 1.25% adequate protection rule, which is typically 1.25% of the principal balance is what they allocate in the form of adequate protection, which is the payment at filing up until confirmation. Well, you get into some of the southern states, like the heat maps of Mississippi, Alabama, Georgia, Tennessee, where the propensity to file bankruptcy is much higher than, than the U.S. some of those adequate protection payments are $20. So you're not hedging the depreciation. The risk of that and, and that's.

A, that's such a frustration is that as a buy here, pay here, dealer, pretty much everybody out here, we look at the asset is it's going to perform for anywhere from, you know, 30 months to 48 months in my case. And then these things get stretched out to 60 months. What happens was when these things don't make the loan, because typically they don't.

So what you'll see is a modification to surrender, which if you're the secure creditor in that asset position right now more than ever, you do not want to be holding the bag proverbially. So what happens is they file that mod to surrender and then a subsequent motion to incur new debt and they find a lender who will finance them a new asset. They hand the keys back to you, you go pick it up and go, it's wrecked with no insurance or it's got a blown motor. Now you have an unsecured position that's funding at 0 to 5%. Well, right now with all the inflationary pressures, consumers are feeling that ratio that they can apply to unsecured debt has gotten smaller and smaller and smaller. So you're getting an asset back that's effectively running as an inoper scrap. And now you've got an unsecured claim that, that looks great with a $10,000 balance. But push come to shove, they're writing that down to zero. They're seeking their discharge, they're getting financed by another company and that doesn't make it over the line.

How is that fair to, to us as dealers?

They don't care.

Yeah, it's not. It's designed to be very creditor averse to where the consumer is, you know, the primary protection, which, which I get that to some extent, but also if you can't force place cpi, most of the judges view that as a violation of the state, irrespective of whether you're passing through that cost. Just like gps, even if you're canceling the GPS or deactivating starter interrupts the fact that the unit is on there, there's such litigious consumer attorneys out there who are going after creditors because it's a nuisance settlement. Okay, I'll settle with you for 2000 as opposed to hiring counsel to defend you in an adversary proceeding or not releasing the asset post bankruptcy filing, which is what we're seeing now, is a big driver where recidivism, there's no longer that negative connotation. Filing bankruptcy where most consumers try to avoid that once you file one bankruptcy, the likelihood of filing a subsequent bankruptcy goes up. So think about this. If your dealer xyz, they file bankruptcy today, they dismiss tomorrow, they file a new case the following day. Now you're starting that clock all over that adequate protection is still diminished. Now you get into the scenarios you're talking about where one year and I haven't received payments, or within that first calendar year I've received $500. Well, divide that 500 by 12. That, that number is very small from just an asset protection component and the depreciation that, that doesn't take into account. You're hoping they maintain insurance. Yeah.

Who's a chronic filer on us, right? He was just, he, he would file it, would expire it, get dismissed, he'd file again. And what happened was at some point in the road, I thought I had filed my claim because I had on one case that got dismissed and then he filed another claim and my, my claim didn't move on to his new case. And all of a sudden I'm no longer secured. He's got the truck in his freaking garage for the last two years and has the nerve to apply for a new loan with us the other day, which is kind of mind blowing. He just thought it was his car now because he thought he was paying the Chapter 13, but the Chapter 13 was never paying me. So it's an absolute rat's nest. What are some ways that we can help prevent or mitigate us getting wrapped up in these situations? You mentioned that there is some, some rules on time frame. Like if they go come buy a car from us and then two weeks later we get a chapter seven or chapter 13 notice. What's our, what's our rights there? Hey, one more time to jump in real quick. Obviously when we talk about bankruptcies, we're talking about being compliant, being legal. So a lot, you know, reach out to the guys that trip you to capital when you're talking about getting those bankruptcies out of your hand. But if you're going to keep them in House and do them yourself. Make sure you're reaching out to Steve Lavine over at Ignite so that you have policies and procedures in place and legal processes for what you and your team do when a bankruptcy is filed.

Yeah, I was in a dealer's office yesterday, and he was super concerned about compliance. And he's talking to me about it. And I was like, jeff. I said Jeff. His name wasn't Jeff, but let's say it was Jeff. You don't need to talk to me about compliance. You talk to Steve Levine because he knows what's going on at night. Capital and Ignite Consultants are the guys that really can. Can build that compliance portfolio and book it for you so that you don't go down the wrong path when it comes to bankruptcies and credit reporting and all these things, because it's really easy to get in trouble real fast without it.

Yeah, they're looking to sue you. Somebody's looking to sue you. Give the guys a good night.

A call. Yeah, so I think the primary driver here is to understand that from the time the bankruptcy is filed within a 13, for example, you have 70 days as a. As a credit issuer or creditor to file that proof of claim. Timely evaluating those plans is the big driver, because if it confirms without a proof of claim, we're starting to see a big transition to trustees and judges who are objecting outright and saying, look, you didn't file a timely file proof of claim. Well, now the consumer has all the leverage. Now, if they're financing that asset within 90 days of origination, then there's a different issue as to whether there's preferential treatment or some clawback, or whether that asset truly was an asset that is necessary for, you know, managing their finances and kind of using the bankruptcy to get healthy within their financial life. You look at the overall landscape of 13s and sevens. Another big driver here is the cost of insurance. That's not being taken into account from a just ratio perspective, where if you're the consumer and you either make your car payment and we can all make this argument, as in, collecting on these assets is, well, do you want me to make my car payment or pay my insurance premium that just continues to increase and rise where no one has off. We've all offset the exposure at the grocery stores and energy and those inflationary pressures. But most importantly is identifying the bankruptcy because the adversary proceedings are becoming more and more abundant within the filings and people who are not in violation of the state from my interpretation. But you pick up a car today, then they file bankruptcy tomorrow. You know, if that within that right to cure window, you are subject to give that asset back and eat those car.

I think that's a good point. I think all of us dealers have experienced that and say that again, because we see this so often in the dealer forums, is, hey, I repoed this car. And five days later I have an attorney calling me, say I need to give it back. But I have the car, I repoed it.

It, you got to give it back. Yeah. So there's some ambiguity there. So, for example, take Georgia, for example. If you repo the asset today and you sell it tomorrow, you know, at a private auction and you do not pursue a deficiency balance, then you're, you're okay. But if you repo that car in Georgia and you issue that cure and that cure does not expire prior to the bankruptcy filing, you're required to give that asset back. Most dealers, believe it or not, the number one thing they say is, well, I don't have proof of insurance, I'm not giving it back. Proof of insurance is not a requirement to nullify the bankruptcy stay in that filing. So you can file a motion to provide that or ask the consumer's attorney to give that to you, but you still have to give that asset back. The other thing is, if you're a big operation that you can't flip that asset back because there's a third party repo vendor that can't set an appointment within 42 or 48 hours or 72 hours, technically, the attorney for the consumer could say, you're in violation of this day. I ask that you release this car same day by 5pm now you're managing the adversary proceeding. Most trustees are going to go, you're right, he's got to get to work tomorrow. It's not. The onus is not on us that you give the asset back timely or have the ability to do that. So that's, those are a lot of the complaints we hear within the dealer base. I repoed it. What are my rights? Am I required to give it back? Well, first and foremost, I don't want to give it back. This person filed bankruptcy on me. They hadn't paid in four months, locked it in the garage, and I got him one night, you know, just through some diligent skip work, so we could go on and on about war stories. But those are just some of the nuances.

And it used to be you could actually, if you repossessed it, then they filed, you could actually get your repo Fee.

Yeah.

And you can't, you can't do that anymore. And, and I just, I tell dealers out there, you need to know a good repossession attorney. I good bankruptcy attorney, because they are worth their weight in gold until they charge you $6,000 for seven. But that, but knowing these laws are super important because they keep you out of trouble.

Yeah. And interestingly enough, what happened during the pandemic is you had attorneys and firms that had a big staff and bankruptcy filings were so low because of record stimulus where people were current and delinquencies were low. So if you've got a staff of 20, you know, bankruptcy associates, those people have kind of exited. There was a mass exodus into new careers, new industries. Well, now bankruptcy filings are back up. So those firms are charging more and more because they're having to bring in talent that they used to have at a, you know, 30 to 40% cost increase on just the labor driver. So now your FTE costs have risen. Well, obviously that's passed through to Luke and Jeff and dealer XYZ in managing that bankruptcy. So the cost to collect bankruptcy has gone way up. And it's a risk mitt tool. You're never going to make money keeping your bankruptcies. By the time you factor out dismissals, total losses and dollars to counsel, you're just kind of squeezing the tube of toothpaste proverbially to make sure you mitigate that exposure.

Yeah, you mentioned something. And before we move on to the next questions, let's touch back on that insurance thing because I think a lot of dealers are under the impression like, oh, I gotta, I got an insurance cancellation notice from that customer that's in a chapter 13. I'm gonna run out and repo it. Cause they're, they don't have insurance today. Like, is that, that's not legal. Right. Like, I can't just pick it up because I got an insurance cancellation notice.

That is a hard no. Now, if you're in the western district of Tennessee, they have what's called priority insurance, which comes part, which is the part of the bankruptcy filing where the court is effectively the insurance company. There are three, four jurisdictions that do that, Arkansas and Tennessee, but everywhere else, that cancellation doesn't mean that you have access to the asset and the relief and the stay is no longer in effect. Now you can hire counsel to file relief from state, but here's what happens. You file that, you get an order, the consumer gets a quick policy, and then 45 days later, you're getting the same Notice and you go again. I'm not going to do this six times a year, paying attorney 750 when my print Mal is 10,000. And now I'm just reducing the overall recoveries, assuming they complete timely. Yeah.

What about the bankruptcy dismissals? Like, when you get those dismissals? You know, we check PACER and try to like stay on top of some of these. If I, if it's dismissed, I have, I can go pick that up. Right? Like that is a total green light.

Correct. So you'll, you'll see some orders. For example, the Northern District sometimes has a 10 day provision. And I know it should be blanket, but it's not. Most of the time, once the dismissal is entered, you have access to the unit, but just double check to make sure there's not a 10 day provision where the order is in effect, but it doesn't go into effect until 10 days. I know that sounds like you're talking out of both sides of your mouth, but there's some ambiguity there. What they're trying to do is, yeah.

We had that happen in this chapter seven that the judge ordered, and then it was like 48 hours for the order went into effect and then there was a dismissal and it got all confusing.

Yeah, yeah, Enough time to file again. Let me Dismiss, put a 10 days wait period so that this consumer can go out and talk some other attorney into getting him on board, some small retainer to get it filed and then never talk to him again and fall out of bankruptcy. So with all that being said, Louis, let's talk about the economic impact to the dealer of whether we know the frustrations and the headaches of handling our own bankruptcies. Luke spending $7,000 on each one, just trying to get some $700 back. That was why I have a management style of just neglect and ignore. Just kind of let them go and figure it's gone. What's the smartest way and how is it financially? I mean, how does the, how do the numbers play out? If I say, hey, I'm gonna, I'm gonna put all my time and effort into just sticking it to this guy and I'm gonna take him to court, I'm gonna get every single dollar, maybe hire somebody to handle my bks, as opposed to just saying, you know what, I'm gonna take, what, $0.50 on the dollar, $0.40 on the dollar, and I'm gonna sell this off to a company similar to yours.

So the first thing I always tell sellers, whether it's the institutional guys or the buy here, mom and pop that are selling 10amonth. Just because you hire an attorney doesn't change how the consumer is going to perform. Just because you sell your bankruptcy doesn't mean they're going to perform better for me than they are for you. We have this 20 year static data for those guys that have an asset. So it's a very simple drill and just net present value, time value, money. If you've got an asset that's got a $10,000 balance and you sell that asset for 4,000 or whatever the percentage is, and you redeploy that into a new asset at inventory, you spin it into a new customer who's not subject to bankruptcy proceeding, where you control the collectability of that consumer, why they're not paying an explanation and you're not at the mercy of the court and you're getting that delta between charging the risk adjusted rate of 20% as opposed to, we'll call it 7.5% from the bankruptcy court. So would you rather a $10,000 balance with 7 and a half percent interest at 60 months or would you rather.

Down to begin with?

Correct. Or would you rather spend that 4,000, maybe your average ACV is 7,500, put some incremental dollars in there, create a balance at 12, 13, 14, 15, subject to 20% interest over a 40 month loan. So you run the economics from a pure interest income standpoint. It doesn't take long to kind of offset or hit that point of inflection. And you're not having to manage the bankruptcy where there's just so much uncertainty, where you're at the mercy of the court. And now most of the time, if you can even get a court personnel on the phone, they say we can't give you legal advice, call an attorney or hire an attorney. Whereas 20 years ago you go, okay, honey, let me check this. Yeah, I'm going to put a dismissal notice in. We'll set it for hearing in 21 days that that very personal relationship is no longer the case.

Jeff, you know, tax season is well underway. It should be. And you know, you go, okay, well, I'm going to make a lot of money this year. What can I do to kind of help protect me from the IRS and protect my loans as they move forward. And the best way to do that as a reinsurance, I don't. That's why to do it.

Luke, I've been, I wake up and I think if you're a taxpaying American and you find out that these government agencies are sending millions of dollars to Just nonsensical garbage. And it's happening everywhere. Just the waste, fraud, and abuse that goes on in our government. It should make you, as an American, want to minimize your tax burden and do everything possible to reduce that, because they are not spending it right. And it infuriates me that we pay such a ridiculous amount of money to be spent in some random place when the. The. The education system, the roads, the veterans, the homeless, they could use that money. So let me spend that directly on him. So anyways, that's my.

Let's round up boy. He's round up today.

Let's talk about finding every possible way to minimize that money that they're just going to spend ridiculously. They're going to take advantage of it and spend it wrong. So not saying Buckeye endorses any kind of aggressive tax policies, but they are the guys that can help you do it legally to minimize that burden. Kick the can down the road a bit to where you might be in a better tax bracket or strategize on a better way to. To. To bring that money into yourself and minimize the. The freaking nonsensical money you're going to give to the government. They're going to spend on some sort of a silly program in the middle of nowhere. Ridiculous.

Jeff is on a roll here.

Call the guys Buckeye.

Yeah, that's. That's so important here, and it's something I hadn't. I've never thought about is that. That time value of money taking that. That 5% to 8% interest that you got and just selling it to you or whomever and redeploying it into 20%. I mean, that's a win automatically, not counting the other portions of it.

Well, to me, Luke, it's the. Just the. The brain damage and the headache and the distraction that it can be. I'm not big enough to have a staff. I don't have a bankruptcy attorney on. On payroll or on retainer. So just having those bankruptcies sit in my collector's queue is such brain damage. It's so painful to be like, where are they at? Have we called them? Have they dismissed? Did we get a reaffirmation? Are they. Have they paid? When was the last time we got.

It just.

It just. It's brain damn.

What if you're Louis? What if you're like me? And I've had. Right now. I was looking. We have, out of 850 accounts, we got 10 of them sitting in bankruptcy.

Right?

And some of these have been in bankruptcy a long time. And Some of them are just, they haven't paid yet. Right. So is there an advantage money wise to selling the ones that are seasoned? I mean the season bankruptcies matter or, or fresh ones better. Does it? Does that?

Yeah. So the nice part before, for example, our purchasing program or whether you have analyzed those 10 loans, if you actually took those 10 loans, in your case being in Utah, Utah typically has a higher, a better performance rate than some of the national averages. Adam Goodman is a trustee that's now operating there for those guys where they understand the importance of getting all of the parties to kind of work together. If you have 10 bankruptcies, most of the time 50% of them are, are not paying. So you may have an active bankruptcy with protection there. Of 10 bankrupt loans, five of them did not receive cash flows in the prior month. Five of them have. If you blend those total recoveries into the, into the 10 average or the 10 loans, you're driving down that monthly payment. So we had dealer recently who had about 15 bankruptcies. Well, I got a payment on 90% of them and I said, well, what was that total amount? The average payment he received was $71 for each of those accounts. Whereas if he were to sold the note and he controlled the payment amount per month, it's about 400 at that 20% rate in a consumer not subject to bankruptcy. So you know, there are a lot of variables there. Going back to your question whether a cease in bankruptcy is more valuable than a bankruptcy that is newer, the wave on the front end is much more difficult to manage on a new filing. As they work through whether the feasibility or confirmation is going to happen. For those that are not seasoned or that are seasoned in cash flowing, you can just run the economics there and go look. Most of the time, if you're the dealer, your whole objective is to take into account the down payment, all the payments you've collected, to try to figure out how to break out of the asset to cover your ACV and your exposures there, never to make money. If you can, great. But once you've hit that hurdle, most of the time you should reallocate your resources into what you're good at, which is collecting notes not subject to bankruptcy. But we can do the analysis very quickly for you and make a compelling argument. And if it doesn't make sense for you to sell these three that may pay off the next four months, but these five that have filed within the last six months on average and your cash flows are very nominal, we can do that as well. So you know, I Know, it's somewhat of an ambiguous answer, but there are a lot of variables. But the nice part is once you start selling, you can start selling the minute you receive the bankruptcy filing door. You have no cost, it goes directly, it's sold, we move on and we manage that process.

Talk to me about that then. For us dealers that are a little simpler and inexperienced in the process and with dealing and don't understand a lot of the jargon and whatever, what's the, the process for me? If I got a bankruptcy notice today on, let's say it's a chapter seven for me as the dealer, I would, would I send that directly over to a company like yours or would I first find out if it's a reaffirmation or a surrender? I mean that's, that seems like the logical step, right?

Yeah. So we always tell people, use, use us for the free analysis. Then you can make your decision on how to manage that within your collection queue. Send it over, let us evaluate it. We'll give you our perspective on how to manage this. And that perspective takes into account geographically where they filed the trustee, the intent, which can be very different whether they're pro se or not pro se, and how they plan on paying for that asset. Then we'll give you somewhat of an analysis for you to review and say, okay, they'd like to reaffirm. We can run the reaffirmation for you, file that for you, help you complete that. Or in the case, if you have an experienced BK staff member, tell them that, yes, our guidance recommends that you keep this in house, collected out in the event that one of these three iterations of performance happens. They don't sign the reaff, they don't make any payments. You get close to discharge, does it make sense for us to secretly from stay or wait an incremental 60 days for the discharge charge? You can kind of run that cost benefit, but lean on us for that. You know, we're available anytime to give you that guidance and yeah, kind of get that partnership rolling.

Does that change with a 13? Because to my mind, a 13 is like, no, no, no, don't want to touch it. Like I don't want to deal with it. Just hand that one over directly, sell it, get rid of it. I don't wanna.

Is that different? Most of our forward flow relationships, the minute they receive notice, that may not be real time within the same day because most of the dealers are not set up for what we call BNC Bankruptcy Noticing center, which is an electronic notification. So it's very antiquated. And well, here's the mail. You're never going to believe who filed on us. Louis Barna. Oh, he was a great guy. Said he needed the van for his kids sports. Here we go. You're upset. You send that notice to us, you don't file a proof of claim, you don't pay an attorney to review it. We notify all the parties in the court, creditors, judges, trustees, we manage that process. You receive funding, you mail the original documents and you're done with that bankruptcy. You don't have to worry about total loss with no insurance, dismissal and refile, whether or not the plan terms are favorable and getting an objection and it's no recourse. So if they dismiss the next day because they wrecked the car and they go, the only reason I filed the bankruptcy was to protect the car. I don't need the bankruptcy anymore because I don't have the car. Now you're stuck. So it's just a lot of different reasons why and how to manage. Who can get you that granular information specific to where you are as a dealer, Whether it's Georgia or Utah or South Carolina or into some of the states where you see very low bankruptcy filings, like Wyoming, we have a perspective over the last 20 years that's very granular within those 94 jurisdictions.

Cool. Yeah.

And if you have the ability to or interest in getting the asset back, we have the servicing component, which is about 40% cheaper than hiring a firm to do so. And leveraging our network of relationships within the bankruptcy court that we do have with debtors, counsel and judges and trustees.

So if we have a really, really nice asset, let's say something that's got, it's a twenty thousand dollar ACV truck, we really, really want it. They're in a A7 or A13. You as the servicing company or the attorneys, you could take a different strategy to say, look, our goal here is to get that asset back. We're going to make every motion and every movement to try to recover this asset. Is that kind of. Can you look at bankruptcies differently?

It is, it is. So what you have to understand, for example, on a seven, you have six months of leverage. Once that case is discharged, the likelihood that you hire counsel to reopen that bankruptcy to address your $20,000 truck, there's no cost effective way there because the end result isn't going to work out favorably for the creditor. So managing from the time of filing until discharge, the different levers you can pull where you can raise your hand and say, hey, the intent is X, Y and Z. But you're not playing by the rules here or what you said you're going to do. So we are going to file an objection to discharge pre discharge. Now they start to behave and say, okay, we can't afford the asset. Our means tests were off, our ratios were off, our schedules are incorrect. We're going to go ahead and surrender the asset back to you. Do you want us to circulate an agreed order? No, I'm not going to fight you on lifting the stay. So we always try to avoid those filing fees within the court. And though we call them motion heavy pleadings, if we can leverage our relationship with, with Jeff and Luke, consumer attorneys and say, hey guys, we know they can't perform on this thing. You don't want to show up to a hearing, send it over to us, we'll reach out to counsel, you know, or we are counsel and we'll, we'll work through that to get that asset picked up. Understanding that a, the biggest thing is everyone would like to surrender to just here are the keys. Come and get it on this date or we'll drop it at this auction. But no, these are, these are somewhat tumultuous events where they're losing their claims car and most of the time what we hear now is okay, I can't afford it, but I don't want you coming to my job to get it. Can I meet you at a local convenience store to surrender it? Now you have somewhat of a, an amenable relationship. That's the surrender is affected amicably as opposed to just here's the order. Now you take the order and you assign your repossession. Let us add value there and say not only do you have an order to get the asset, but here's the focus phone number, the address where you can pick it up from and the time. And we have consent from consumers Council to call the consumer to make sure the, the surrender goes smoothly.

Yeah, last time we're going to break in as a self propagating, propagating, I don't know, a self advertisement and that's me. So as y' all know, I'm, I'm getting out of the buy here, pay here business. But I'm still here for everybody to do some consulting. So my plan, Jeff, is to get around 10 dealers and I'm fast approaching the 10 dealer mark. So if you need me to help consult, we've got a couple different offerings we can give you. Reach out to me, lukewarmotors.com I will set up something with you or call me 800-362-25957 and I'll come out and next week I'm going to be in Dallas. So if there are any dealers in Dallas that think they may want me to help them out, give me a ring and I can stop by one day next week and kind of look at your dealership and tell you what we can do for you.

Yeah, it has begun.

It has begun. Louis, I think, I think that the information you've given dealers right here is super important. I mean I've been doing bankruptcies forever and I've learned more, I think today than I have in a while. What's the best way for our audience to get in touch with you? Because bankruptcies will blow your mind, especially if you're a, a single operator like a lot of folks are out there.

Yeah. So you can call us anytime at 214-680-7899 or email us. We're on the web@tributecap.com you can quickly realize we have a everything obviously in bankruptcy court is redacted. So not having those PII sensitivities or vouchers valuable. You can submit it to our info and underwriting or any one of our staff will be able to board a new consumer and feel free to lean on us even if there's not a relationship to be had there. Pick up the phone and use our brain power for the last 20 years of having taken the losses in specific jurisdictions and the profits and other ones and managing kind of the ever changing code. So yeah, you can reach out anytime. Again, that's 211-468-07899 or Lewis tributecap.com that's Lewis L O U I s at Tribute cap like a baseball cap.com and you'll see quickly that it's very personal. We you get answers real time and it's not a function of because I know a lot of time dealers can be frantic. I've got this attorney telling me I've got to release the car today or they're going to file an anniversary proceeding. The person couldn't go to work today. They want $25,000 for pay pain and suffering lost wages. And we can get you that real time data so that you can make a, a decision that is justifiable and that protects the interest of your organization.

Yeah, Jeff, I love it when companies do that for us because honestly car dealers, we aren't the smartest people in the world, especially when it comes to this, this lawyer type stuff. But, Lewis, thank you so much for educating us. Thanks.

Cool.

Perfect.

That was super knowledgeable or educational.

Yeah, yeah. It's. It's ever changing. You know, it, the interpretations. And now with this, you know, this regime that's kind of coming into place and obviously Elizabeth Warren is going to have a bit of a back seat here with some of the CFPB stuff we're seeing. It's. There's a lot of value add to understanding bankruptcy court. And we anticipate, if you just extrapolate the first month of this year, bankruptcies to surpass 450,000 filings, which we haven't seen since the latter part of 2020. So it'll set a record for the last five years. There's a lot of volatility in the market, so we'll be here to help those dealers all along the way and add value.

Cool, man.

Yeah.

Okay. Appreciate it. I'll definitely reach out to you. That's for sure.

Awesome. Thanks, guys.

See you, bud. Take care.

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