4,946 Reasons to Enter the Hottest Practice: Personal Bankruptcies

By Larry Bodine, Esq., a business development advisor based in Glen Ellyn, IL. With the Apollo Business Development Program, he has helped law firms nationwide get new clients and generate millions of dollars of new revenue. He can be reached at 630.942.0977 and www.larrybodine.com.

Smart lawyers have already added insolvency to their practices, but new statistics show that consumer bankruptcies have become a red-hot area to find new clients: the number of personal bankruptcy filings jumped nearly 8% from September to October – that’s one month.  (Source: Automated Access to Court Electronic Records.)

Naturally, lawyers prefer to be on the creditor’s side of a bankruptcy, because there’s a better likelihood of getting paid.  But Marketing 101 says that lawyers should look for “pain” in the market place, and offer solutions that involve legal services. With the crashing of the economy, that would be consumer bankruptcies.

The number of personal bankruptcies have been growing nonstop for two years, totaling 880,076 in 2008 (Source: American Bankruptcy Institute and the National Bankruptcy Research Center.) This statistic is approaching the level before October 2005, when the restrictive Bankruptcy Abuse Prevention and Consumer Protection Act took effect.  Despite this statute, October filings totaled 108,595, surpassing 100,000 for the first time since 2005.  That equals 4,936 bankruptcies filed on each business day last month, up 34% from October 2007.

“With the consumer credit tightening and the economy in a nosedive, this pop could just be the beginning of a long-term rise in the bankruptcy filing rate to levels that are even higher than we had before the 2005 bankruptcy law,” Robert M. Lawless, a professor at the University of Illinois College of Law, told the New York Times.

A great source of referrals is credit counselors.  Nearly 2.5 million Americans seek the help of a credit counselor each year. The average client seeking the help of a counselor had $43,000 in debt, of which $20,000 was consumer debt and $8,500 was revolving debt. (Source: www.money-zine.com.)

The states with the most Chapter 7 and 13 filers are Nevada, California, Delaware, Rhode Island and Indiana (Source: The New York Times, 11/16/08.)

The typical client is a middle-class family with a six-figure income, who used up all their home equity to keep up with the cost of living.  Also caught up in the bankruptcies are real estate investors, who hoped to flip properties they had bought near the height of the market.

New research

The BTI Consulting Group just released new research, “BTI Premium Practices Forecast 2009: Survey of Corporate Legal Spending,” stating the bankruptcy is a “solid area around which to build a highly specialized practice or firm. [It] simultaneously promises strong growth and continued demand. This combination offers the possibility of leveraged knowledge, streamlined processes, predictable costs and a steady stream of business. Successful law firms develop standardized processes and tools to earn powerful returns while capitalizing on practice area growth. In other words, they maximize the formula to enjoy increased revenue and higher margins.”  For more information about the report, visit http://tinyurl.com/5jdq2a

The report goes on to say:

• Bankruptcy has been on the upswing, growing above the market average for the past two years.
• The clients seeking outside counsel services in this area are willing to pay premium rates.

Strategies to build a successful bankruptcy practice include:

• Reinforce perceptions about your firm as a premium provider for high-stakes work.
• Host exclusive events for potential clients. Discuss emerging trends and proactive techniques consumers can use immediately.
• Sponsor forward-thinking research to establish your firm as a thought leader:
  • Write articles, especially for Web publications, about when a person should turn to bankruptcy.
  • Distribute letters, emails and newsletters with timely, proactive updates on industry trends.

The causes of the bankruptcy boom are exactly what you’d expect:

• Individuals have maxed out their credit cards and have used up the available money from home equity loans.  This is the tipping point for most consumers to contact a bankruptcy lawyer.
• Banks have pulled back on lending, so homeowners can’t refinance their mortgages.
• Revolving credit, mostly credit card related, has grown to $971.4 billion over the past 12 months. (Source: Federal Reserve, 11/7/08.
• Individuals are using credit cards to pay for food and utilities, and are finding they cannot make even the minimum payment.