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ON THE C OV E R BANKRUPTCY 101 I Carolina Auto Pros' David Klaiber advises bankruptcy customers to make their payments on time, rebuild their credit and refnance before the term is up. customers move on to other departments once their credit is better." BUILDING A REPUTATION PJ Taylor, F&I; director at Buckeye Ford in London, Ohio, says that 25 percent of his business is repeat customers or referrals. He stands behind Buckeye's special fnance expertise and never hesitates to ask car buyers to refer their family or friends. "Tey might not be a BK, but there's a good chance they're subprime," he says. Taylor uses a combination of radio, TV and direct mail to advertise his services. He also relies on referrals from local bankruptcy attorneys, but he cautions that not all attorneys are aware of the options available to their clients. "Tey have the option of keeping their car in the bankruptcy," Taylor says. "So they include a $13,000 [obligation] that's only worth $8,000. Tat's $5,000 in negative equity, and that puts them in a bad position." He would advise the same customer to let their old vehicle go and start over with something they know will last. "If the income is there, we can put them in a new Ford," Taylor adds Dave Klaiber is a partner with Carolina Auto Pros LLC, a North Carolina-based frm that helps dealers set up programs for bankruptcy customers. He has worked in the segment for 15 years in multiple states. Klaiber agrees that attorneys are a good source of leads, but dealers must be prepared to fll in the gaps. "You'd better know the laws before you talk to customers," he says. "You've got to educate them. 'Pay your loan on time, don't get anything negative, come back and cut your rate in half.'" 18 f you're new to the BK segment, here's a rundown of some of the basic vocabulary. Chapter 7: Filing for Chapter 7 bankruptcy allows individuals or married couples to liquidate their assets in exchange for relief from some debts. Unprotected property is sold to repay creditors and all remaining debts — excluding money owed for taxes, child support and student loans, to name a few examples — are discharged. Guidelines for protected and unprotected assets and debts vary from state to state. Chapter 7s account for more than 70 percent of all bankruptcies fled in the United States. Individuals who have fled for Chapter 7 may not fle again for seven years. Chapter 13: A Chapter 13 bankruptcy allows individuals to seek relief from escalating debts by setting up a court-approved plan to repay creditors. Chapter 13s are typically fled by consumers who have steady income and can settle their debts within 3 to 5 years. Open bankruptcy: Individuals in a pre-discharge or "open" bankruptcy have fled Chapter 7 Klaiber says his primary goal is to create a lifelong customer. To do that, he says, you have to give them a fair price to counter the steep interest rate. "Te interest rate is determined by the bank. Don't bury them in [the deal]. Get them halfway through their term. Afer 12 or 24 months, now their rate can drop from 18 or 20 percent to 12 or 13 percent." Klaiber speaks from experience. Several years ago, following a contentious divorce, he fled for Chapter 7 bankruptcy. He gave up his car and, rather than pulling a replacement from his inventory, fnanced a year-old Honda Accord coupe. He then made a year's worth of payments before refnancing. "I've got a story to tell," he says. "I rebuilt my credit." SEARCHING THE INVENTORY Bankruptcy customers who are surprised to learn they can get fnancing have another surprise waiting at the dealership: a better selection of vehicles than most special fnance customers are aforded. "Two weeks out of BK, you can get zero percent on a new Ford," says Sill-TerHar Motors' Reese. "Tat's zero down, no payments for 45 days. But when you come back, you'll have to put money down." Reese adds that not every BK customer qualifes for zero percent, but those who do are "quite happy." Rock Honda's Cowan says "pretty much anything" can be a BK unit, including new cars and late-model used cars — as long as AUTO DE ALE R MONTHLY • AUGUST 2013 or Chapter 13 and entered proceedings to determine the value of their assets and whether and how their debts can be settled. Closed bankruptcy: A Chapter 7 bankruptcy is discharged (or "closed") when an individual's assets have been valued and their remaining debts have been forgiven. A Chapter 13 bankruptcy is closed once the individual's debt repayment plan of either a three- or fve-year term (as approved and overseen by a court-appointed trustee) has been completed successfully. they have less than 120,000 miles on the odometer. Klaiber said recent deals have included a 2010 Toyota Rav4 with 6,000 miles and a good-as-new 2012 Nissan Altima SE-R. "A lot of people are uninformed as to their options," Taylor says. "You can get a better vehicle." Te quality of the vehicles available to Buckeye Ford's BK customers speaks to their experience in the F&I; ofce. "Tey're going into bankruptcy for a reason," Taylor adds. "Get them while they're still in it. Help them get out." OnlineBKManager's Davies agrees. Since he focused his 17-year-old business on bankruptcy leads fve years ago, his confdence in the segment has grown. "I look at the service we're providing," he says. "Te dealer makes money. Te lender makes money. … If dealers don't want to sell BKs, they should shut their doors. Te inability to work with those people means closing themselves of to a big piece of the market." Reese advises dealers who do enter the segment to give BK customers "the red-carpet treatment." "You've got to treat these folks right," he says. "It's a chance to make somebody happy." For more information about subprime loans with guaranteed interest-rate reductions, turn to Tom Hudson's Legal column on Page 20. ABOUT THE AUTHOR Tariq Kamal is a media consultant based in Los Angeles. Contact him at tariq.kamal@bobit.com.