How bankruptcy lawyers can increase filings 10x by offering $0 down bankruptcies, even for Chapter 7s
In this episode of Bankruptcy Law Success, Philip Tirone — founder and CEO of 720 Systems Strategies — and I have a great conversation about different ways to offer $0 down bankruptcies.
Philip and I have had some great conversations about bankruptcy trends, including previously on the podcast, so I knew we’d have a great conversation.
We discuss the four most popular ways of offering $0 down bankruptcies:
- $0 down Chapter 13s
- $0 down Chapter 7s through “third party guarantees”
- $0 down Chapter 7s with bifurcation and without factoring
- $0 down Chapter 7s with bifurcation and factoring
I encourage you to find at least one $0 down method you’re comfortable with, and try it yourself!
Some of the highlights in this interview include:
- How bankruptcy lawyers have increased filings 10x by offering $0 down bankruptcies, even for Chapter 7s
- The exact phrase to use in your online Google Ads to increase your “click-through rate” by 75%
- The specific words you should repeat on your ad’s “landing page” to increase conversion rates by 33%
- 3 legal ways of offering financing for Chapter 7s that can easily survive a Chapter 7 discharge
- The exact 8 qualifications the president of NACBA uses to qualify prospects for his “$0 Money Down Chapter 13 offer”
- Why offering a “third party guarantee” is an easy way of seeing whether you’d benefit from a $0 down offer
- And a whole lot more, including what “bifurcation” is, and why it’s the gold standard for $0 down Chapter 7s
You can listen to the episode by clicking the “play” button in the audio player above, or read a full transcript below.
You can also subscribe to get an email when we release new episodes of the Bankruptcy Law Success podcast.
Bob: Hi, this is Bob Hiler of the Bankruptcy Law Success podcast, where we introduce you to successful bankruptcy lawyers, as well as powerful ideas that can transform your bankruptcy practice. Today, I’m speaking again with Philip Tirone, CEO and founder of 720 System Strategies, which works with hundreds of bankruptcy attorneys around the country to increase the profitability of their firms. He’s based in Phoenix, Arizona.
Philip, welcome back to the podcast.
Philip: Good to be here, Bob. Thanks for having me.
Bob: Sure. So, the backstory here is that I interviewed Philip for the podcast a couple of months ago, and ever since then we’ve kept in touch. We’ve actually been referring business back and forth. And just… we were also having some great conversations about some of the trends that are facing bankruptcy attorneys.
And the last time I talked to Philip, I thought to myself, “Man, we should have recorded that conversation and made it a podcast episode.” So I called him back with the idea, and here we are.
Philip: Well, good to be here. I love brainstorming ideas on marketing and bringing in additional revenue for these bankruptcy firms. So, hopefully this will be as fruitful as our conversation was.
Bob: Great. Awesome. So the topic I want to focus on today was financing bankruptcies and the concept of $0 down bankruptcies, or trying to get as close to that as possible. And since we’re going to be talking about things from a marketing perspective, let’s talk about that first. Philip, what are some of the marketing benefits of financing bankruptcies?
Philip: Where do we begin, right? I mean… When you take down the barrier to entry… The inherent problem with the bankruptcy is these people are struggling. They’re getting slammed with creditor calls. They have no money. So they call a bankruptcy attorney and most bankruptcy attorneys require payment upfront because their fees are not dischargeable, right? So they don’t get discharged with the bankruptcy.
So if you can take away the upfront fee, it’s quite a game changer. And what I find, not so much from the lead generation standpoint — although you can speak more to that — but in the conversion, at the intake conversion, it’s a game changer.
Bob: What kind of game-changing statistic have you seen on some of the attorneys you’ve worked with?
Philip: Oh, I guess high level, what we’re talking about is the Chapter 7, no money down bankruptcy. If you go from one extreme to the other… You go from one extreme of “we do not offer… you got to pay me in full for your bankruptcy” to the full other extreme of “no money down Chapter 7” through like a bifurcation process… I mean, the same day retain rate can literally double. I mean, it’s an immediate and obvious shift that you see instantly. So, I mean, are you seeing the same thing with your clients?
Bob: Yeah. Well, I don’t really have visibility into the conversion stats for most of my clients. But I can tell you on the lead generation side… I had a client that you actually referred to me. We won’t say his name, but we initially used some kind of generic advertising to generate leads with Google AdWords, and after changing the AdWords to focus on “$0 down,” the click-through rate jumped by 75 percent and the conversion rate… So when people went to the landing page and what percentage of them became a lead, it went from 18 percent to 24 percent, which is an increase in the conversion rate of 33 percent. So we’re talking huge, over-a-100-percent-more leads. And they’re a lot cheaper, too.
Philip: Now, when you advertise… Before you converted the Chapter 7 no money down… Are you distinguishing the difference between 7 and 13, or are you just going from “no mention of cost” to “no money down” in that ad copy?
Bob: Yeah, it’s really “no mention of cost” — just talking about how we’re your friendly local bankruptcy lawyer — and then going from that to something that really focuses on “$0 down.” And there’s some complexities to that, because there’s… we’re going to get into this later, but there’s many different ways that you can offer financing and that’s going to obviously affect the copy of your ads itself. But there’s a couple of examples that I have talking to people — these aren’t necessarily my clients — but one attorney that used bifurcation told me he went from somewhere around 20 filings a month to 200 to 250 filings a month. So, that’s pretty amazing.
Philip: Yeah, I’d say so. 10x number.
Bob: Yeah. Now there were some other factors that went in there too, but yeah, we’re talking huge increases. If we’re talking twice as many leads, and you’re talking twice as many conversions, those compound. So that’s four times as many bankruptcies. You know what I mean?
Philip: Well, especially when you’re talking about the clients that you help. I mean you put them through a process on driving leads through Google AdWords and the like. Every click is money, every click is potential revenue. So when you increase the lead flow by 100 percent, it’s day and night. People say, “oh, you can’t make money in Google AdWords.” Well, that’s absolutely not the case, as you know.
Bob: Yeah. If you’re generating twice as many leads for the same amount of cost, then, hey, your cost for click just went down by half and your cost for leads just went down by half and you’re paying the same amount for twice as many leads. And that really helps your economics.
Philip: Absolutely. Absolutely.
Bob: So, there’s obviously lots of laws around financing bankruptcies, because you can’t really carry a debt through a discharge. I’m really talking about Chapter 7. It’s kind of a myth that you can’t finance a Chapter 7. So I want to talk about ways of respecting these laws and still financing bankruptcies. But with the caveat that neither Philip or I are bankruptcy attorneys or attorneys at all… So, we’re really going to focus on the marketing.
Philip: I mean we work with attorneys across the country who do a variety of different things on how to do a no money down bankruptcy, and that’s what we’re explaining… What what we see that’s working, right?
Bob: And there’s also a lot of practical landmines here. For instance, you don’t want to agree to finance a Chapter 13 with a zero dollar down, and you do all of this work for a Chapter 13 and then you have the client not make a single plan payment. That happens all the time and we want to talk about ways of avoiding that, too.
Bob: So, let’s dig right in. And the first thing I’d like to talk about is the easiest form of financing which is a $0 down Chapter 13 and… I’d like to use an exemplar of John Orcutt in North Carolina and he actually works with Ed Boltz who is.. I believe the president of NACBA. And if you go to billsbills.com, you can find the following page, which I’d like to pull up and I’m going to read a little bit of it. And that introduces their $0 money down bankruptcy. And for anyone who wants to kind of dip their toe into financing a bankruptcy, this would be the easiest way of doing it. So there’s a whole page of copy on this page that I’m going to read you a little bit of it, because… They don’t just offer the $0 Money Down Chapter 13 to anyone, they have certain qualifications. So I’m going to read you those qualifications and then we can talk about them a little bit. Okay?
Bob: Okay. So obviously, they have to qualify for a Chapter 13 and here are his 8 qualifications: “1. You have a steady dependable income sufficient to pay your normal monthly living expenses and your Chapter 13 payment.”
Before I get into that, when I talk to my clients, sometimes it seems like they’re so busy trying to help clients get into a Chapter 13 payment plan, they don’t really think about whether that income is steady and dependable. So they end up doing thousands of dollars of legal work on clients that have really unsteady income or a substance abuse problem. There’s just no way they’re going to make it through a five-year payment plan. I mean is that something that you’ve seen as well, Philip?
Philip: Absolutely. I think the nationwide success rate on a Chapter 13 bankruptcy is somewhere around 35 percent or something to that effect, about that. It varies depending on the district. But hardly does every 13 succeed. What’s unique about John and this is what he… I mean John’s an extraordinary marketer, I mean, clearly. But what he did in the very beginning when he offered a “No Money Down 13,” he said, “you don’t even have to pay the filing fee.” Because there’s plenty of attorneys out there that say”hey, no money down, no money down, no money down,” but when they come in the office you have to pay the filing fee. Right? And here’s the credit report fee.
So what John did… He took away that objection. Right? But that’s the way John thinks. Right? Just like, take this away, and it just skyrocketed his practice. So, he really trailblazed that whole philosophy.
Bob: So, you bring up a great point, which is there’s at least three — and sometimes four — components to the cost of a bankruptcy. The number one is the cost of the bankruptcy lawyer’s time, obviously. The second one, though, is the court filing fee, which is typically between three to four hundred dollars. The third one is the credit counseling fee. And then in some states they have both a pre-filing and a post-filing… Like the post-filing thing will be some kind of personal finance class. So you have to add up all those components to really have complete zero money down offer.
And that’s why you see people kind of parse words, and I’ve done this myself, where you say something like “zero dollar down bankruptcy attorney” or “bankruptcy lawyer”. So you know that’s really just focused on the bankruptcy lawyers fees. But you know in that case, you’re not financing these other components. You know what I mean? There is a bit of a cheat in some districts… In some districts you can get the court to finance its court filing fee.
Philip: Its filing fee, like you mentioned, right?
Bob: Yeah. You can finance it over four months. Talking to some clients in East Tennessee, you can just get them automatically financed by filling out a form. In L.A., in the Ninth Circuit — well, I don’t know if this applies to the entire 9th Circuit — but you have to go to the L.A. court and spend a day in order to get a judge to approve it, so it may not be worth it. But if your district supports that, that can work out. That’s a nice option to have.
Bob: So the last components are those credit counseling fees, but for the most part, those are like 10 to 20 dollars.
Philip: I want to bring up something on this note, Bob, because a recent client of mine… I did a strategy call with Matthew Frey, one of our 720 clients, I think it was a month ago or two months ago. And this guy is from Saginaw, upper district or northern Michigan. I think he does work in the Eastern and Western district of Michigan. And two years ago, he was doing somewhere between six to 12 bankruptcies a year and went towards what we’re talking about — and I’ll get into more of his details later — but he converted to a no money down through bifurcation, a no money down Chapter 7.
But on this point, regarding the credit counseling fee, he would always have his clients pay the credit counseling fee. And he said this credit counseling fee is… you know it’s… whatever it is, 20 dollars or whatever. And then what he decided to do was just give the people a code and just let them… He was going to pay it. And he said on our strategy call: “I was in my head about it, because I was thinking to myself, hey, what if all these clients had me pay their credit counseling fee then they went to someone else for a bankruptcy, and I was stuck with the bill?” And he was just in his head that he was going to rack up thousands and thousands of dollars in credit counseling fees by freely giving away this code that he was paying for. Well, it turned out… I mean this guy, now, is doing somewhere between 25 and 30 filing a month — all bankruptcy — and he said they’re in all of last year — so we’re talking hundreds of filings, 250 filings — it only happened one time where he paid for someone and they went somewhere else. So for those of you who are considering this whole credit counseling certificate, and do I have the client pay or not, it’s sort of like John Orcutt. What Matthew Frey did… He took the objection out of the client’s mind, so he’s like: you don’t even have to pay the credit counseling fee, I’m going to pay it for you. Let’s get this bankruptcy filed immediately. So that’s something you know we have the full transcript available on our Web site for that, as well, of Matthew’s… That specific strategy call.
Bob: Okay. Very cool. Yeah, I was on your website today — to figure out where you were located so I could say it in the little intro — and I saw the little pop up. So if you just go to the website, it talks about the Matthew Frey strategy session, and you can just presumably enter your information and get access.
Philip: Yeah, you just put your e-mail in and we send it to you automatically and it’s 720systemstrategies.com. So anyway, I’ll get more into that about how he does his bifurcation later on, but I just wanted to point out about the whole paying-for-credit-counseling.
Bob: That’s a great point. Because we’re talking about 20 dollars and paying for… Investing 20 dollars into a case — or not investing 20 dollars into a case — and having just a huge increase in volume, I mean, it’s a no brainer.
Philip: You’re right, you’re right…
Bob: Now, there are valid reasons… There are valid concerns that bankruptcy attorneys can have about clients and that’s why I’m so impressed by John Orcutt’s eight qualifications, so let’s keep on going because you can see exactly how he approaches things.
The second qualification is that you cannot have more than $2,000 in funds on hand. So look, he doesn’t want to… He only wants to finance people that don’t have a million dollars in their bank account. If you have the money to pay for his chapter 13, he wants you to pay that upfront or as much of the retainer as he usually charges. So that makes a lot of sense to me.
Bob: The third qualification is, you need those funds on hand to pay for your living expenses and to protect your family against emergencies or other unexpected expenses. So again, that’s really part of the same kind of qualification.
Number four, you have no money left over in your budget after paying your living expenses in your Chapter 13 payments. So, it’s kind of… going with, one, does your payment plan have room for this?
The fifth one is, you owe our law firm no money on a prior dismissed Chapter 13 case, so you can’t just recycle Chapter 13s with them.
And then, the last two — they actually really impressed me — and they have to do with real estate. Number six is, you are less than six months behind in all real property you want to keep. And seven, there are no foreclosure sales scheduled to take place in the next 30 days with respect to real property that you want to keep.
I don’t know about you, Philip, but a lot of the stories that I hear where an attorney does thousands of hours of work on a case to stay a foreclosure, and then never receive a plan payment, those are often the last minute emergency cases where someone is like you know “it’s Friday, but can you help become my lawyer before Monday morning when I have a foreclosure?” Have you seen that too?
Philip: It’s not just a conversation that I have often, so I just don’t have an opinion on that.
Bob: Okay. Yeah, that’s something I came up with in the Matt Herron conversation who does Debt Doctors over in Pittsburgh, who’s in one of my early podcasts. You can look that up since I came up in that podcast.
And the last thing, the number eight, and you can tell me, Philip, the marketing reason for this… Number eight, you sign up with us before this zero money down offer expires. So what’s the reason for that?
Philip: Building the urgency, right? Building the urgency. If there’s no urgency, you’re not going to convert.
Philip: And this is why this whole no-money-down is so great, because what happens is you get people who just get sued, they’re going to get garnished, they’re going to lose their home. Those are great clients. Those are great leads, right? So the question every bankruptcy attorney should be asking themselves is: how do I build urgency outside of that, OK? It’s easy to build urgency when the money is going to be pulled out of their account on Friday. There’s built-in urgency, right? There’s built-in urgency to “Oh my gosh! I’m losing my house. The sale is next week.” Got it? OK, that’s urgent. Ok, but how do you build urgency around a creditor call? That’s what’s happening. They’re getting calls. Do they like it? No, of course they don’t like it. But the truth of the matter is they’re not answering those calls. They don’t answer calls that they don’t recognize, right? They’re not doing it. So how do you build… Yeah, exactly. I mean what they gonna do is… they’re going to get screened out by a creditor? They’re conditioned to ignore all those calls, which is a whole another reason why the typical follow up that the bankruptcy attorneys do — just call, call, call — isn’t exactly that effective, right? So what you do is, how do you build urgency? Well, one of the ways is through a type of no money down, right? And you know one of the things — and once again, it comes from the Matthew Frey strategy call — what he does is, when his clients call in, he says: “Oh, I can file your case no money down, but it has to be an emergency. Because I can’t file a no money down if it’s not an emergency. If it’s not an emergency, you’ve got to save the money.” And the clients are like, “well, it is an emergency.” Great, what’s the emergency? The client says, “well, I got this person calling me and I feel stressed out. I’m emotionally distraught.” OK. Great. Write this down. He actually has him write down on their fee agreement, what the emergency is, right? Which I thought was brilliant. And then he says, “OK, great. So we get this… The only way we can actually file your case as an emergency — with the no money down — is if we file your case two weeks after you call me for the first time. So, once again, more urgentcy So you just can’t have someone call in and say, “great, I’m going to forget about you for six months and then call you back.” So those are two ways that he builds emergency. Or I should say, urgency in leads.
Bob: Urgencies through emergencies. I like it.
Philip: Yeah, there we go.
Bob: So the $0 down Chapter 13, I think, is the easiest way of offering a $0 down solution if you want to dip your toes in the water. It’s actually… Maybe I should say it’s the second easiest, because it seems to me that the easiest way of dipping your toe into this is by offering a third party guarantee. And a third party guarantee — just so that we’re on the same page is — Joe Schmoe comes to you and says “I want to do a no asset Chapter 7.” And you say to them, “OK, great. Who do you know that has good credit?” And they say, “my mom.” And his mom guarantees… His mom will sign an agreement and she’ll actually pay you a $100 or $200 a month — whatever it is, for X months — for the bankruptcy. So that’s how the payback will survive the bankruptcy discharge because the person paying it back is going to be the client’s mom, or the client’s friend or family, rather than the client himself.
Philip: Yeah. I mean, and this is the key distinction. So the attorney is saying to the person, that you disclose them, “look, do you have someone in your life who would guarantee the payments? Now, I’m never going to call you…” So, the attorney never calls the clients for a payment, ever, right? However, we all know that the client is allowed to make voluntary payments. So I have attorneys across the country who do this and what they do is they send out invoices to their family member — or whoever was the third party guarantor — and they send out an invoice to the third party guarantor — whether by e-mail or whatever — and then whatever the third party guarantor does with that invoice… They can either pay it… But at the same time, from what I’ve heard from my attorneys, voluntary payments come in around the time that the invoices are sent. Now, the attorney never contacts the debtor, ever. The attorneys never contacting the debtor, because that would be a violation. What the attorney’s doing is basically just sending an invoice to the third party guarantor. If the third party guarantor contacts the debtor, it’s out of your control. You have no control. But the debtor can obviously make a voluntary payment. Now, what’s interesting about that is with third party guarantors clearly… you don’t just take every third party guarantor and approve them, right? Just like John Orcutt has a set of qualifications, you have a qualification for your third party guarantors. Overarchingly, the feedback I’ve gotten is that it’s a heck of a lot easier to go to a debtor and say “do you have someone in your life who would guarantee this contract for you?” than doing the opposite and saying “do you have someone in your life that will write a check for $1,500 today?”
Bob: Yes exactly. And that’s been my experience as well, where someone will go to ask for the guarantee, they’ll say “I don’t know. I think my mom would just rather pay for it than guarantee something,” and then they just a check from Mom or from their brother or whomever it is.
Philip: Well, what is the nice thing is you’ve given options to the person, right? You’ve given them options. So if you’re giving Mom the option: “Hey Mom, unfortunately, I need to file bankruptcy. It’s $1,500 or you can do ten payments of $150. What works best for you?”.
Philip: So once again, it’s giving options to the client. You’re using it to build urgency. You’re all right there. And this is completely outside the bankruptcy. There can be no concern about discharging the debt because the guarantor is not a party of the bankruptcy.
Bob: Well the only concern, of course, is that the guarantor will himself or herself filed for bankruptcy. So that’s why you have to pull credit reports and look at their situation. And that’s a whole other conversation that we can have on another episode, perhaps. But I will say that if you want an example of a third party guarantee, I did a survey… I went on PACER and I downloaded some from reputable firms and I have a good third party guarantee contract. And if you just send me a message on LinkedIn, I’ll send it to you, OK?
Philip: Great. Great value.
Bob: Yeah. So the thing about a third party guarantee though is that it kind of only works for… So early on we talked about two advantages of going to $0 down, or offering financing in general. One is that the the click rate and the conversion rate for the ads themselves goes up a hundred percent. And then, Philip, you mentioned the second one, which is that as the closing rate goes up, it doubles as well, right?
Philip: Oh yeah. Definitely.
Bob: Now, the problem that I’ve seen with third party guarantees is that if they don’t have a friend, if they don’t know someone with good credit or their parents aren’t with them anymore or whatever their story is, then the closing rates is kind of going to be maybe a little bit higher than it would be otherwise. But it’s not going to be double. So you kind of miss that second benefit, which is the higher closing rate in that last sales call. Right?
Philip: For sure. I mean, a third party guarantor will not convert the same as the no money down 7. Yeah, definitely.
Bob: Then again, I would imagine that the collection rate would be higher. That is, you’re going to get more money from somebody doing a third party guarantee…
Philip: Bob, let me just jump in here for a second. I hear often a knee-jerk reaction of, like, “Oh, my God. Payments to a debtor, you’ve got to be kidding me. These people can’t pay their bills!” Right? I’d throw this out there… For those of you who have that belief, I just invite you to readjust that statement. There are debtors who are absolutely repeat filers and you would never ever want to loan money to. They don’t really care about their situation. They’re going to file bankruptcy again in eight years, and they’re just the deadbeats. They just keep doing it over and over and over. However, the vast majority, in my opinion, of people going through bankruptcy are people who really do want a fresh start. And they actually care about their future and their life. And those are the people we’re looking at, right? I don’t know if that number is 60 70 or 80 percent. It’s probably somewhere around that depending on the district. But those are the people that — when you give a chance to — they will not default on you. You’re actually saving them. I’ve had many bankruptcy attorneys who have been debtors themselves. And when they explain that in the intake, and they say, “look I’ve gone through the bankruptcy process. I know how painful it is and what I’m going to do for you is I’ll give you a hands up. And here’s what I’m going to do. I’m going to finance your case because I believe in you. You have the job. You may not have the credit score, you may have a horrible credit score, but you have the job, you have the payment flexibility, and here’s what I’m going to do for you.” Let me tell you, they become fiercely loyal and that’s when the referrals come back as well.
Philip: I’m just throwing that out there.
Bob: I can back it up. I spoke to at least one of my clients who does exactly that. And he says that the big thing that you have to do is you just have to disclose to them about how it’s actually legally required. These are kind of voluntary payments, you know?
Philip: Yeah, right.
Bob: That’s absolutely something important that you have to do. You could lose your license if you don’t. But, just like you say, when you talk to attorneys, attorneys are so focused on what’s legally required that they forget that social ties are what binds us together as a society, and as family and friends. You don’t have a legal obligation to go to your in-laws for Christmas, but you do because of the social ties that bind.
Bob: So if you say, I’m going to take a chance on you. I believe in you and you can make voluntary payments of $200 towards your plan, and let me know if you lose your job and I’ll suspend it… whatever the conversation you have. You can get high collection rates and lots of referrals. So that’s a great point.
Philip: Yeah. Yeah. You know, I don’t think I have…and I may and maybe I just haven’t asked. But if… So you have clients that actually collect… So you’re saying they do the no money down without bifurcating the contract to create enforceable accounts receivable.
Bob: That’s right.
Philip: Oh, wow, I didn’t even know that. I don’t even know if I… That was off my radar screen.
Philip: Wow. So they’re truly voluntary. Wow, I just… I haven’t come across that. That’s an interesting… I just never really thought about that.
Bob: Yeah. And the payback rates are very high.
Philip: Well, I’ll tell you on payback rates, with the no money down Chapter 7s, payback rates are extraordinary, depending on how the client can qualify him. I mean, I have attorneys… we’re talking volume attorneys, we’re talking 20, 30, 40, 50, 75 filings a month and they have a default rate under 5 percent.
Bob: OK. Well, let’s let’s talk about bifurcation, both with and without a factor. And then let’s get into exactly what you’re talking about… So you’re kind of an expert on bifurcations, so can you explain what bifurcation is both with a factor and without a factor?
Philip: Well, I definitely am not an expert on bifurcation. I just have a lot of… I hear the conversations a lot from our clients and I can explain what I know, but I’m definitely not the expert. What bifurcating is, is when you unbundle your services as a bankruptcy attorney and you create a pre-petition agreement, which is used for filing the skeletal file, and a post-petition agreement, which is used to create all the schedules and all the other work associated with the bankruptcy, right? Now, this is a gray area of the law, right? I mean, for sure. But it’s getting more and more popular around the country… There’s been tens of thousands of these cases that were done in 2017. And mainly because of the platinum sponsorship of BK Billing and what they did with NACBA. So they were… I’m not sure if they were the platinum sponsors for the last two years or three years, but they came out at NACBA and at the conference, and just explained “hey, here’s what bifurcation is, here’s how you do it.” Now bifurcation has been around for years. The case law goes deep. Starting in the Middle District of Florida with the Clark and Washington case. And basically, what it says is, like, if you file a skeletal file, here’s a pre petition agreement and I’m agreeing to… the client’s agreeing to pay me X number of dollars, whether that’s 0, 500, or whatever, and I’m to file a skeletal file. OK?
Now, afterwards, after the filing is done, the bankruptcy attorney creates a post-petition agreement with the file number. So the file number from the bankruptcy, and it’s put on the post petition agreement. Oh, and let me go back. On the pre petition agreement, it’s important that three things are pointed out. The client has three options: They can: (1) continue the case with the attorney and the attorney can finish it with post-petition services, (2) they can either go to a different attorney to do the post petition services, or (3) they can do the post-petition services themselves. So it’s important in the pre-petition agreement that those three things are stated.
And then the post petition agreement, this is saying: “Hey, I’m going to attend your 341 and I’m going to do all the schedules, and do all the following for you. And for that, you’re going to pay me the following: ten payments of $150, ten payments of $200, it’s all based on the attorney”. So that creates an enforceable accounts receivable with the attorney, OK? So that’s the concept of bifurcation.
When it comes to factoring, so what BK Billing offered at NACBA is saying, “Hey, if you bifurcate this way, and you create a pre-petition agreement, and a post petition agreement, and you follow these criteria and your debtor qualifies this way, we’ll actually buy that paper from you. And we’ll buy that paper from you, we’ll do all the collection, we’ll report the payments to the credit bureaus, and we’ll handle all that from you, so you can get paid in advance, and we’ll get paid as the loan matures.
As with any factoring agreement, they charge a fee for that. So they buy it at a discount. And the discount, I think, depends on like the length of the contract and all that details… the different things about the contract. And by the way, with factoring, they actually do factor and buy paper of third party guarantors as well. It’s not just bifurcation. They’ll buy any type of Chapter 7 bankruptcy contract, whether it’s third party guarantors or bifurcation. They won’t do anything with Chapter 13s.
Philip: So is that a good summary?
Bob: Yeah. If you’re a listener out there, and you want to get even more into that, there’s a podcast episode that I did with the CEO and founder of BK Billing and…
Philip: David Stidham.
Bob: Thank you, David Stidham, and he goes into a lot of this and I think he explains there that… I think the discount rate is somewhere in the 30s or 35 percent rate. So if you have like a $1,000,000 in bankruptcy fees, you can get $650,000 or $700,000 or something around there. That’s a ballpark figure, and it could be higher or lower, depending on your default rate.
So using that as a segue, can you talk about some of the factors that bankruptcy attorneys can use to qualify their prospects, so that they get the guys who are actually going to pay them and achieve a default rate of 5 percent or less?
Philip: Yeah. So, I was in the mortgage business for many, many years. And the most important thing, for sure, is job. And it’s not just “job,” it’s how long have they been there. If they’re hourly and they’ve been at this job for two weeks, it could be a red flag. If you get the client who’s been at his job for a year or two years, those are the people you want to bank on. Credit score really doesn’t mean much, obviously, at the bankruptcy side because their credit score is ruined at this point. So I wouldn’t even pay attention to that. You’re going to discharge all their debt. They’re not going to have all these payments.
The question is what are their payments going to be afterwards. So you take all their payments that they’re going to have. So if you did bifurcate their case they’re going to pay you, let’s just say $150 a month. And here’s the rent. And here’s the car payment. And whatever payments they have… And that’s what you want to look at. You want to look at it and say, “what ratio is that?” Like what percentage of their monthly spend are they spending on those payments, right? And you, definitely, for all… when it comes to what that ratio is, in the mortgage business, you an all-in ratio not to exceed 45 percent, right? That includes your rent to your home, plus everything, because you need some money to live on. That’s what works in the mortgage world. That being said, if someone’s making $1,500 a month, they’re going to need more than a 45 percent ratio. They’re going to need more to pay. So you just got to understand your situation, understand your market, and go from there. And most importantly, do you trust the person? Is this someone that you feel deserves a hand up?
Bob: There’s just so many factors… Do they show up on time for your in-person consultation? Do they treat you with respect? Is the first question that they ask… Are they price shopping, or are they generally appreciative of the $0 down offer so they can get a fresh start? Those are definitely factors as well.
Philip: Well, what’s interesting about that, when it comes to price shopping, when someone is calling regarding bankruptcy, right now, everyone’s conditioned to sell for the free consultation. Wwhen you do offer a no money down Chapter 7 through the bifurcation process, it changes the game. And I’ve had clients that go from selling the free consultation to saying, “well, oh you do Chapter 7? How much do you charge?” They’re calling around, as you know. They click a Google ad, they call, they backspace it, and click another one. And when you call them and say, “Well, I offer three options: option one is no money down and ten payments of $150, while option two is a cash discount price of $1,200. Which one do you prefer?” Overwhelmingly, they’re going to say “Oh I’ll pick the no money down and 10 payments of $150.”.
The key thing is, the most important aspect of this bifurcation is reasonableness. You need to be reasonable, because the cases we’ve seen from the U.S. Trustees or the motions from the U.S. Trustees, it all ties to these bankruptcy attorneys around the country that have started with… Let’s just say their fees were $1,200, $1,500. And then they went to the bifurcations process and doubled their fees. And in some cases even more. That’s where the U.S. Trustee was a big problem. But that being said, I’m not a lawyer — I’m not an expert of bifurcation — I just know that that’s what my attorneys have told me.
Bob: I’m watching this Ashcraft case the U.S. Trustee filed in Riverside, I think, where they’re suing… Basically, this is going to set the precedent in the Ninth Circuit, perhaps. Very interested about that case, to see what’s going to happen.
Philip: Yeah, well, it’s going to be interesting. I mean, the key thing is you want to disclose, disclose, disclose. That’s the problem. I think with Ashcraft, there was some problems with disclosing, there was a problem with reasonableness. And that’s what they’re doing.
Bob: One of the things that they did to kind of justify the increased price was… there was a credit education product that was actually… I was wondering where that came from, because I don’t think that came from you, right? You have a credit education product…
Philip: No, no…
Bob: …they have a credit education product and they use that’s going to justify the increase in fees. But we’ll see how that sorts out. Now, one of the things I want to really highlight, because bifurcation is so closely associated with the BK Billing, I do want to point out that you don’t necessarily have to do bifurcation with BK Billing. If you do it independently, of course, you have to do a lot of legal research and figure out how to meet the Washington and Clark standards and all these other things. But you can bifurcate by yourself and not factor to someone like BK Billing. The caveat, of course, is that you’re going to have to finance all that stuff yourself and it’s going to take a while for you to break even.
Philip: Oh, yeah. That’s moat, right? If there’s a moat around these guys like the Debt Stoppers… I mean, the Debt Stoppers, Clark and Washington, they did like 5,000 Chapter 7 bankruptcies last year. It’s all financed, it’s all bifurcated. I mean, I shouldn’t say “all,” but a huge number… I mean all their advertising is that. And before BK Billing, Good luck trying to do that. This is a rich company’s game to be able to bifurcate and carry that paper. So BK Billing came along and said, “Look, we’re going to factor that,” which was so unique in the marketplace, “and we’re going to factor and we’re to show you exactly how we do it, and this is how to do it legally. And we’ve spent…” — I mean, there’s probably no one who has spent more money besides Clark and Washington Debt Stoppers on understanding this process than BK Billing — “and here’s what we’re doing.”
But it’s perfect for these small firms. Now, I will tell you… again, I’ve some attorneys that… they use BK Billing and it’s sort of like a mix. So you go to BK Billing and say, “OK, great, I’m going to carry half the paper. Or whatever, I’m going to carry 20 percent of paper.”
Bob: Sure, sure.
Philip: The nice thing about BK Billing is they’re not saying, “Hey, you’ve got to send us everything.” No, I mean, if you have a client and you have some extra money, and I mean, think about this from a standpoint of if this person pays, it’s a great return on your investment as well. It’s better than the stock market, right? You’re going to put money in and you’re to save whatever BK Billing’s fees are. So it’s really a combination of — on one hand, the certain people who need B.K. Billing in order to bridge that gap, because, let’s just say you did 10 bifurcated cases, that’s 10 times $335, plus your legal fees, plus all that. And you got to do that next, another month….
Bob: So $335, that’s what you’re saying the court filing fee. It’s not always $335 but that’s a good proxy.
Philip: Well, oh no, it’s $335 on 7s, right? So it’s $335 on 7s and then you got the credit fee and all these other fees. Whatever it is, let’s just say it’s $400. You do ten Chapter 7 bifurcated cases, that’s $4,000 you’re going into the hole right now, without anything. You’re making no money that month either. So let’s just say you sell three of them to BK Billing or five of them to BK Billing. OK, great. And each month, you carry a few extra papers. So those are just different options.
Philip: But the nice thing about BK Billing is you don’t have to do all or nothing.
Bob: One of the big issues around all these options that we’ve talked about is that at some point someone has to collect. And for some of these clients, they’re going to have to either enter some sort of collections process or you have to write-off their loans. So just because… Every bankruptcy attorney wants to be on their client’s side. And no bankruptcy attorney wants to mar the credit of one of their clients or to be a jerk collector.
Bob: So, there’s a bunch of options here and I just want to talk about them. OK? So, the first one is sending to collection agencies. Do you know anyone that sends to collection agencies, because I know several.
Philip: No. I don’t know anyone. I mean I know BK Billing doesn’t either. BK Billing, out of the thousands and thousands, probably tens of thousands of cases, they’ve never sued a client or sent anyone to collections.
Philip: So you do have attorneys to do that?
Bob: I know one attorney who does that. I mean, certainly it’s an option, right?
Philip: Yeah. It’s an option.
Bob: And one of the things that I’ve learned in understanding the FCRA a little bit more, is that not everyone can report a debt. If you’re a furnisher of information under the Fair Credit Reporting Act, you have to go through this whole auditing process. So a bankruptcy attorney can’t just report someone’s collection status. It has to be through some entity that has gone through that furnishing auditing process under the FCRA.
I bring that up because the next option is where you can report a debt, but not actually send it to collections. But I think in order to do that you would need to, at least, work with a collection agency to do that, because normally you’re not going to be able to report the status — the legal term is furnish, you can’t be a furnisher. But that’s the second option.
Now the third option is — what I think BK Billing does, but I don’t want to put my words in… I don’t want to say that I’m actually describing them — it’s where you don’t report the debt or send it to a collection agency. You might imply that you do. And here I’m not talking about BK Billing, but if I were not reporting debt and not sending someone to a collections agency, I wouldn’t go out of my way to explain, “Hey, if you don’t pay me I will actually do nothing.”
Philip: Well, the thing is BK Billing does report to the bureaus. I’m positive they do. That’s one of the huge advantages. I’ve had attorneys that have said to me they continue to use BK Billing because they report the payments to the bureaus. That’s a huge one.
Bob: OK. So what I will say is that if you’re Joe Schmo bankruptcy attorney, you cannot report to the bureaus and you can’t threaten to report to the bureaus either. You have to go through some kind of auditing process to be a furnisher under the FCRA. And apparently BK Billing has gone through that process, so they’re able to do that.
And the last thing is — this is not, like, an option that people choose, but it’s an option that some people seem to end up on — where you hope people pay and if they default you don’t do anything. Do you know anyone who does that?
Philip: Yeah. They do it through third party guarantor, they do it through the bifurcation process, and for anyone if you’re not going to go after their collections, yeah, that’s what they do.
Bob: So those are the options, and I just want to lay them out because there’s obviously a lot of people that think that you either send someone to the Piranha Collection Agency, or you do nothing. But there’s a gradation of options. And the other big option that you have is like an auto finance company, they might send it to collections after 60 days, but you can do, a 120 or 150 days without reporting, without sending someone to collections, if you want to be you know extra flexible with your clients who are, after all, coming out of a bankruptcy and they’ve had some life event situation like they’ve lost their job or got a divorce or something.
You can also not report until there’s 120 days or 150 days, or send it to the collections until it’s 180 days and so they’re significantly behind. And maybe you do it where people just aren’t returning your phone calls. You know if they’re working out a plan, then you can say “Look, I’ll get in touch with you in three months and we’ll try to work something out then.” But if they’re just ghosting you, then sure go ahead. I know I would’t have a problem, at least, reporting someone after 180 days has gone by and someone has ghosted you. I mean that’s just me, personally.
Philip: The key thing is when someone misses a payment, you got to get in communication with them instantly. Like, right away. And you want to get them to pay anything they can. Because the minute they, like, check out and they start avoiding your calls, that’s where the loss is. So the nice thing about it, is they have a relationship with you. So, you call them and say “Look, if you can’t afford to make two hundred dollar payment, no problem. What can you afford? Can you afford fifty dollars this week? Great. Fifty dollars. OK.”.
Like, any type of movement is the win. That’s really what you want, you want the movement. And then from there, organize them and put them back on a payment plan or whatever that is.
Bob: The other thing, if you’re going to be doing this kind of thing by yourself, is to use some kind of automated collection service. The one that I hear a lot about is Lawpay. I’m sure there are others out there. Just make sure that they aren’t putting the payments on a credit card. But if it’s a debit card or an ACH payment that you’re setting up, then everything’s fine. And then you just tell them: “Well, I’m going to bill you on the fifth of every month and that’s going to happen automatically.” And then if something bounces, and you’ll get an email, then you have your secretary or you yourself, you ping the clients, give them a call to see what’s up.
Philip: Now this may sound obvious, but I just want throw it out there for the call. If… You want to find out when your clients get paid. So let’s just say they get paid every Friday, you want to run their account on Fridays, right?
Philip: You don’t want to create a payment structure set up to lose, right?
Philip: So, for example, instead of doing the 1st and the 15th, no, let’s create a payment structure to win: “OK, what can you afford?” “Well, I can afford like $50 a week.” “OK great. What day do you get paid?” “On the Fridays.” “OK, what about every Friday, fifty bucks?” That’s better than saying: “On the first of every month, we’re going to do $200.” I mean this type of clientele, they’re going to forget things. Let’s set them up to win. That’s what we want to do.
Bob: You bring up a great point because I’ve always kind of either been exempt or an entrepreneur — exempt from overtime as a salaried employee — and I’m used to the first or the 15th being days as the paycheck comes in. But where I’m going is that a lot of bankruptcy clients are the exact… the kinds of customers that you’re talking about where they have weekly payments. They’re paid on either weekly basis or just hourly. They’re not paid bi-weekly, they’re paid weekly or every two weeks. And so, whatever it is, you want to structure your payment like that.
If someone gets paid on Friday, though, won’t you want to pull their payment on the following Monday? Or is that too late?
Philip: Well, whenever the deposit hits… because they’re going to go through it. I mean, that’s the thing. You know, these people need to build the muscle, and they don’t quite have the capability of looking out and saying… I’m talking about the people who are going to miss payments. And there are a lot of people who are going through bankruptcy who can pay their bills on time and they just had a setback, right? But I’m talking about the people who are in the gray area. Just, like, set them up to win. So whenever it hits… If it hits Friday morning, run it Friday at noon, right? You want to set this up in a way that works. And that’s very very important.
Bob: That’s a great tip. And again, a lot of people out there, they think about financing and they think there are legal rules against it. I kind of want to end on a note, which is something that I’ve noticed, which is that — you may be in a market today where there aren’t $0 down financing offers out there, but if someone offers it in the future using any of these techniques, that person is going to win in your local market. I’ve seen it happen again and again where nobody becomes the first person to offer either bifurcation or a $0 down or, like, through third party guarantees, or even this $0 down Chapter 13 like Jon Orcutt and Ed Boltz have been doing in North Carolina for many years… And they’re going to win a big chunk of the market when they do that.
So don’t think that you’re in some corner of the market where you’re going to be immune to this because it’s going to come to your market sooner rather than later. So, if I were a bankruptcy attorney, I would be looking at these different options. I would certainly be considering doing the third party guarantee thing, because you can do that today regardless of the legal precedents on bifurcation in your circuit or your district. So have you seen that, Philip, where one person does offer some sort of financing and then it’s like a nuclear bomb in that market?
Philip: Oh, yeah, of course. And to your point… For those of you who are curious about this, and you’re thinking to yourself “gosh I would love to do it, if it would be possible.” Here’s what I’ve had clients do. Wait for the perfect case. You’re going to have a single mother who’s going to get garnished, doesn’t have money for a 7, and you’re going to put her in a 13. This is standard practice around the country. You put someone into a 13, understanding that it’s going to get kicked but you’re going to stop the garnishment. So in that case, what you do is you just disclose, disclose, disclose. Keep your fees reasonable. Do a no money down Chapter 7, have her sign a pre petition agreement, have her do a post petition agreement, and agree to a certain number of payments. If you want to sell the paper to BK Billing so you can get paid right away, sell it to BK Billing, and then write it up with full disclosure and send it to your local court and say I’d like an opinion on this.
Let me tell you most likely what’s going to happen, because this is what’s happened with the half-dozen, dozen attorneys that have done this. You’re going to get no response. They’re not going to give an opinion, because the reality is, is one, it’s better for the debtor. The court would not argue that it would be better for the debtor to go into a 13 and get kicked out. It’s obvious they won’t do that. It’s better for the court because the court’s not going to argue “oh no, put it through at 13 and have it kicked out.” More work for the court. And the reality is it’s better for you, the attorney. It’s a win, win, win.
ABI just did — which is the American Bankruptcy Institute — just did a huge — it was like an 18 month — study with judges and bankruptcy attorneys, retired judges on what changes need to be made to the bankruptcy law. And all over the report was some type of post petition payments. Across the board. I mean, recommendation after recommendation after recommendation. Post petition payments, post petition payments. It’s better for the debtor, it’s better for the attorney, and it’s better for the court. And we just got to get caught up on it.
Now, the key thing is: full disclosure, disclosure, disclosure. Second thing is reasonableness, reasonableness, reasonableness. You got to do those things. That’s where the Ashcrafts and these other firms they’re being looked at by the U.S. Trustee where they got into problems. But that’s what we have to do.
If you want to do the paper yourself, you’re welcome to. Iif you want to outsource it and have these payments collected by a third party, BK Billing does it. They were NACBA’s platinum sponsor and you can take a look at that. So anyways I just wanted to end on that note. Something came to mind when you said that.
Bob: Well, my advice to someone who wants to dip their toe into it would be to start with a third party guarantee. But I think that’s another viable solution. I just want to get your take on that. Would you agree that that’s okay?
Philip: Oh, yeah. I mean, third party guarantee is a easy win because it has nothing to do with the debtor and you’re running with it. You don’t have to worry about the debtor, and anything like that. So that’s an easy win.
But I will say, I hear it from bankruptcy attorneys all the time: “Oh, it’s hard to find a third party guarantor.” If I were you, I would try it. You know in your intake meetings, you know “Hey, if you don’t have the money, I can create a payment plan for mom or dad.” And you’re going to be surprised how many people say “yes” to that.
Bob: Yeah. I also want to circle back on another point that you made earlier, which is — you were being hypothetical but you were saying like you can make 10 payments of $150, or you can do a cash discount of $1,200 or something today. Is that legal to have the cash discount amount be different than the total amount of the sum of the payments?
Philip: I don’t know why it wouldn’t be legal, but I never really thought about it from that perspective. Cash discounts are standardized practice in our society. If you pay over time, it’s X, and if you pay it all upfront, it’s Y. And incidentally, in the bifurcation process, any attorney who’s bifurcated a Chapter 7 — or any attorney, better yet, forget the bifurcation — any attorney that has filed a skeletal files, knows that there’s extra work when you file a skeletal file. And that’s a key point of the bifurcation process. You need to file a skeletal file, because [otherwise] there’s no work on the backend. Years ago, there were attorneys that were getting in trouble with the U.S Trustees because they were doing the bifurcation process but they were doing all the work pre-petition. That doesn’t work. Because the U.S. Trustees are like: “why are you bifurcating your fees if you’re doing all the work upfront?”
Bob: So I also want to end with a plug for your credit education product that’s part of your 720 System Strategies. Because if you include that in the kind of the post-petition part of a bifurcated case, you can use that to justify the fees that you are charging post-petition, right? I mean it’s going to help.
Philip: Yeah. It was a nice wind in the sails when this started because I had people call me, you know, for years I’ve always… Our program is called “Seven Steps to a 720 Credit Score.” We’ve had 60,000 people go through it on how to improve their credit after bankruptcy or foreclosure, that type of thing. And we always talk about, with our attorneys, on how to raise your fees with it. Because it’s an easy way to raise your fees. I mean, you can easily raise it $100, $200 per case, and add your retainer rate will go up.
But then I had an attorney call me and say, “Oh, no, I don’t want to raise my fees. I just want it for reasonableness.” And I’m like, “why?” And they’re like…And there’s one attorney in particular who said “Well, I was just contacted by a U.S. Trustee asking me for my fee agreement, and I want to show them what I’m including for all my bankruptcy attorney”. And when he showed the US Trustee what’s included in our program, they stopped the inquiry. So that was a big win for us for sure. Yeah, thank you for that.
Bob: Sure, I’m plugging your product, but it’s also… if you get a letter from the U.S. Trustee asking you to prove your reasonableness for your post-petition fees or just your reasonableness in general, that’s a scary thing. And if you want some insurance against that moment, then Philips’ credit education product is part of his system, and you should talk to him about it. OK. So that’s a great note to end that. Thank you so much for joining us today.
Philip: Well, Bob, thank you. And let me just throw the ball back at you. Anyone who is interested in driving leads — absolutely without a question — get Bob on the phone and go through his process. Let him talk to you about it. Because as you can tell, he has a very analytical mind, and he takes and recreates the program that he’s already proven in other verticals and in other states, and he’ll show you how it works. So if anyone’s interested in creating leads and driving additional revenue for their bankruptcy or law practice, I mean absolutely get Bob on the phone.
Bob: Well, thank you. And it is not just because you plugged me, but I enjoyed this, I’d like to do it again. Maybe next time, we can talk about the ideal sales process for a bankruptcy attorney to close their own client. How do you like that?
Philip: With all of our clients combined, we can add a lot of insight.
Bob: Okay. great. So that’ll be the topic for the next one. All right. Thanks, man.
Philip: Ok, Bob. Thanks so much.
Bob: OK. Bye bye.
Philip: Bye bye.