The Essentials: Addressing Bankruptcy Account Management Challenges in 2025

Leaders in default servicing operations are evaluating how best to scale and manage resources, as they prepare budgets and strategies for 2025 and beyond. Bankruptcy account management is one area that has recently garnered more attention from lenders and servicers, given the consistent rise in filing volumes over the last 18 months. One solution organizations often consider to help manage bankruptcy-related challenges is Business Process Outsourcing (BPO). We’ve compiled some key considerations and practical approaches for those evaluating BPO tools to gain efficiencies, lower servicing costs, and mitigate risk within bankruptcy operations.

The Bankruptcy Landscape

Data provided by AIS shows a steady increase in bankruptcy filings over the last 12 months, resulting in a 15.43% hike in year-to-date filings over the same period last year. Projections indicate this trend will continue in 2025 with an estimated 590,000 new filings entering the system, 80,000 more than what we saw in 2024. And if the trend continues, we could return to pre-pandemic volumes by mid-to-late 2026.

Source: AIS proprietary bankruptcy database. Pre-Covid average consists of filings totals for 2016-2019

Key Considerations for Servicing Leaders

BPO providers can arm servicers with potent tools to strengthen their existing bankruptcy operations, as workloads increase.

• Flexible Resourcing: Evaluate if your current resources are scalable enough to manage potential volume increases. Partnering with a bankruptcy managed services provider can offer an adaptable solution, with specialty partners able to flex resources based on demand.
• Specialized Technology Solutions: Review your existing technology stack, automation tools, and outstanding technical requests. Utilizing managed services through a BPO partner, organizations can benefit from advanced workflow-based software and process automation, designed specifically for bankruptcy account management. This streamlines document management for efficient, compliant, and accurate loan servicing.

Core Challenges in Bankruptcy Account Management and the Potential of Managed Services

Bankruptcy account management requires balancing complex regulatory compliance, secure data handling, and efficient operations. In the mortgage sector, the lengthy duration of bankruptcy cases can result in increased costs, extended foreclosure timelines, and elevated risk exposure. Auto loans bring the unique challenge of balancing legal compliance with the servicer's interests, particularly in scenarios like vehicle repossession. Similarly, managing a diverse range of consumer loans, each with its intricacies, adds to the complexity. Here are potential ways BPO solutions can help address these core areas effectively:

1. Ensuring Compliance and Regulatory Adherence Navigating the intricate, jurisdiction-specific regulations of bankruptcy management is a challenge for any organization. Non-compliance risks, from legal penalties to reputational damage, make it crucial to maintain accurate, current processes.
• Vendor Expertise: Outsourcing partners often have dedicated compliance teams well-versed in bankruptcy regulations across jurisdictions. This reduces the in-house compliance burden while maintaining accuracy in processes like proof of claim handling and adherence to automatic stay provisions.
• Adaptability to Regulatory Changes: Vendors frequently update their systems to align with new regulations, offering a responsive solution to compliance management.
2. Enhancing Data Management and Security Data management is a significant concern, especially with strict privacy laws governing customer information. Ensuring regular updates and secure integrations across systems can be a challenge for internal teams.
• Increased Data Security: Established managed service providers in the bankruptcy space prioritize data protection, typically employing advanced security protocols and system redundancies to safeguard sensitive customer information.
• System Integration: Outsourcing partners offer solutions that centralize data, reducing the fragmentation that can occur with multiple in-house systems. This integrated approach improves both efficiency and data accuracy.
3. Achieving Operational Scalability As bankruptcy caseloads increase, scaling operations internally can strain resources. Leveraging BPO solutions allows organizations to adjust resources dynamically, meeting demand without overburdening existing teams.
• Dynamic Staffing: Partnering with a vendor offers the flexibility to scale resources quickly, providing specialized personnel for high-volume periods without the constraints of hiring and training in-house teams.
• Process Consistency: Managed services for bankruptcy help maintain operational consistency, as vendors often bring standardized processes and quality controls to ensure continuity.

Bankruptcy Data: Information Security and Bottom-Line Improvement

In today’s data-driven landscape, access to comprehensive bankruptcy data is a vital asset for servicing organizations. Whether integrated with a managed service or used independently within an organization’s existing operations, accurate bankruptcy data helps drive compliance.

1. Comprehensive Data Solutions for Notification and Monitoring Access to up-to-date and precise data reduces risks associated with outdated information and compliance gaps. For organizations needing reliable data feeds to power their in-house operations, partnering with a vendor that offers tailored data solutions is essential.
• Timely Access to Case Data: Services that provide real-time updates on bankruptcy filings and case statuses support internal teams in maintaining compliance with regulatory timelines.
• Cloud-Ready, On-Premise File Processing: Typical data vendors require clients to send files with sensitive PII for external processing.  However, companies like AIS have developed a system that resides securely within the client’s firewall. Using a proprietary bankruptcy database, matching logic, and processing protocols, the system, Data One, offers a seamless, secure integration for the daily identification of accounts in bankruptcy that minimizes data transfer risks and maintains stringent information security standards.
2. Enhanced Decision-Making Through Unified Data Services Enterprise-wide bankruptcy data services enable consistent treatment of customers, as well as a potential expense reduction.
• Operational Advantage: Integrated or standalone, robust data services minimize silos and enhance operational visibility, enabling teams to make informed decisions that support growth and scalability.
• Profitability Advantage: Moving to a single-source solution for bankruptcy data can significantly reduce annual data costs for lenders and servicers.

Best Practices for Managing BPO Partnerships in Bankruptcy Servicing

For those considering a potential outsourcing model, managing vendor relationships effectively is key to realizing the full benefits. Here are best practices for ensuring successful partnerships:

• Conduct Rigorous Vendor Evaluations
  Selecting the right vendor involves thorough assessments to ensure they meet high standards in compliance, data security, and technology. Evaluate their expertise in your industry and their ability to integrate with your existing systems.
• Criteria to Consider: Compliance record, technology stack, adaptability to volume fluctuations, and data protection standards.
• Establish Clear Communication and Reporting Protocols
  Regular updates and transparent communication with your vendor ensure that you remain informed on compliance and operational performance.
• Recommended Practices: Set up regular review meetings and use key performance indicators (KPIs) to monitor service quality, accuracy, and response times.
• Ongoing Performance Audits
  Regular audits are essential to maintain compliance and operational standards. Periodic reviews validate that your vendor’s processes align with regulatory requirements and organizational goals.
• Audit Focus: Compliance accuracy, security protocols, and adherence to service level agreements (SLAs).

Looking Ahead: Preparing for Future Trends in Bankruptcy Management

As the bankruptcy landscape continues to evolve, organizations that stay ahead of trends in technology and regulatory changes will be better positioned to succeed. Here are key areas to consider as you plan for 2025 and beyond:

• AI and Machine Learning for Compliance and Predictive Insights
  Predictive analytics and AI-driven compliance monitoring could soon enable servicers to identify potential risks and optimize workflows.
• Increasing Regulatory Scrutiny
  With anticipated regulatory changes, outsourcing partners can provide a compliance-ready infrastructure that adapts quickly, ensuring you remain agile in a shifting environment.

Conclusion

Operational burdens associated with bankruptcy account management are likely to increase in 2025, but with a focus on strategic BPO tools, filing trends and analysis, and proactive risk mitigation, servicing leaders can navigate these challenges efficiently. 

For additional insights into effective bankruptcy management practices, explore available resources on www.aisinfo.com.