Credit availability for subprime customers is still low, but the well is not dry. In fact, there are signs that special finance is making a comeback, with the bankruptcy niche leading the way. Finance sources with an established history in the bankruptcy segment know the payoff is worth the risk. They know those consumers will be relatively debt free at the end of the process and motivated to reestablish their credit.

That makes BK customers an ideal candidate for financing. And with bankruptcy filings soaring to heights not seen since 2005, this is a segment that’s ripe with opportunities. In 2009, bankruptcy filings shot up 32 percent to more than 1.47 million for the year. The surge mirrors what happened five years ago, when consumers were trying to take advantage of older, less restrictive filing guidelines before revisions to the U.S. Bankruptcy Code took effect.

Getting Them Early

The two most common forms of bankruptcy in the United States are Chapter 7 and Chapter 13. Chapter 7 is, for all intents and purposes, a debt liquidation program. The 2005 revisions were designed to send more consumers toward Chapter 13, which requires consumers to set up repayment plans with their creditors. Chapter 7s are typically discharged after 90 to 120 days. Chapter 13 bankruptcies can take several years to complete.

Dealers tend to find more success with Chapter 7 customers. To understand why, you need to know the two key events in the process: the filing date and the 341 meeting.

• Filing date: This day kicks off the process, and it’s the single most opportune time to reach out to a customer in this segment. They’re hungry for knowledge and competition for their business is minimal.

• 341 meeting: About 30 days after filing, the customer will appear for what’s called a 341 meeting. He or she will be sworn in to testify to the state of their finances and learn whether their bankruptcy will be contested. Depending on the number of creditors and the complexity of the case, the bankruptcy stands to be discharged 60 days later. However, lenders specializing in the segment can begin approving customers for loans immediately after the 341 meeting ends.


Marketing to pre-discharge bankruptcy customers is unique compared to customers who have already been discharged. The ideal marketing plan for this customer segment goes like this:

• Day 1: Send out a letter with all the information the customer’s attorney didn’t tell him or her. The letter should drive a customer to a Website that can answer his or her questions while providing hope for an approval.

• Day 25: Send out a 341 meeting letter that tells the customer what to expect from the meeting. Encourage him or her to visit your store after the meeting for a free appraisal.

• Day 45: Send out a letter that let’s customers know it’s not too late to get help from your store. Offer advice on their current auto loans before the bankruptcy is discharged. Also make sure to sell the fact that you can help them begin the process of reestablishing their credit.

Depending on the size of your special finance department, it’s a good idea to hit customers with a couple more letters during the process. However, the plan detailed above is a good starting point. And don’t forget about your local bankruptcy attorneys — they can be an excellent source for leads. For the customer, a referral or custom flier from their attorney lends credibility to your operation. 

BK Customers Require Educated Sales Approach

Consumers who file for bankruptcy often don’t realize they may qualify for an auto loan or understand their options. That means they may believe they have to hold onto whatever vehicle they have, even if it’s experiencing mechanical problems.

Your ultimate goal is to get the customer to buy a car from your dealership, but your immediate objective is to build a relationship by educating them about their options. Pre-discharge bankruptcy customers are unlikely to be upside down on their vehicle, which means grosses are typically higher.

“We are still seeing huge grosses on open bankruptcy deals,” said A.J. Ager, sales director at Al Serra South Chevrolet in Colorado Springs, Colo. “The numbers have gotten tighter due to tighter lender guidelines, but that has started to change since the beginning of the New Year.”

Rob Hagen is the founder of, a Houston-based consulting firm specializing in department setup and growth. He can be reached at [email protected]


SIDEBAR: What Are Lenders Saying About BKs?

Having a lending partner that caters to the bankruptcy niche is critical to a special finance department’s success. In fact, many bankruptcy lending specialists not only survived the downturn, but they are coming on strong this year. They pulled it off by focusing less on credit scores and looking for stability and at least some good payment history before the customer entered bankruptcy.

“Our dealers know and understand who a ‘Friendly’ customer is and take full advantage of the unique niche we have in this industry. We differ from other subprime lenders in that we focus on open bankruptcy customers. We give our dealers the ability to get their customers on the road before their competitors even get the opportunity to seek financing.”

—Steven Pittler, president, Friendly Finance Corp.

“The open bankruptcy market has been our primary focus; however, we have positioned ourselves to be competitive in the non-bankruptcy market as well. With the exception of the beginning of 2009, our underwriting criteria have remained relatively consistent, and we will look for ways to increase market share while maintaining our core disciplines.”

— Scot Seagrave, senior executive, Prestige Financial

“Last year was a very challenging year for all of us in the auto finance industry. I anticipate things will continue to improve in 2010, and that it will present numerous opportunities for those dealers and lenders who have survived the last 12 months. The credit markets are beginning to open back up and we are beginning to see signs of many lenders getting back into growth mode.” 

— Chris Lewis, marketing director, Tidewater Motor Credit