Marketing for Cash Flow Business in the Area of Bankruptcy

Developing a Database of Lawyers
I receive many calls from brokers all over the country wanting to know how to develop bankruptcy business. I explain that "bankruptcy" is not a cash flow. Rather it is an opportunity to buy and broker cash flow assets that span the entire cash flow industry.

Let's get something straight right from the beginning. You don't have to be a lawyer to work in this cash flow opportunity. When I deliver talks on bankruptcy opportunities, the first comment made is "You’re an attorney. You’ve got that market all tied up.” There are 7,500 lawyers in the Greater Kansas City area. To think that one lawyer can dominate and control that community of lawyers is not realistic. Everyone knows a few attorneys, and what better way for cash flow consultants to begin their marketing efforts than to contact and network with professionals they know? Call those attorneys. Let them know what you do, and ask them for the names of lawyers who specialize in the area of bankruptcy.

In addition, you can call the local bar associations and ask if they have bankruptcy committees or creditors’ rights committees or workout sections. After they identify the existence of the committees, ask them if you can get rosters of the attorneys who belong to those committees or, better yet, ask them if the list is on computer disk. You may have to pay something for that information, but it is worth it.

The Yellow Pages are a wonderful source of identifying lawyers who specialize. Remember, you are interested in any specialty that deals with financial problems. Furthermore, you know that if someone is advertising in the Yellow Pages, he is serious about his specialty.

Do you see how we are developing a database? In most major cities, there is a business newspaper. In Kansas City, it is called The Business Journal. In addition, we have local papers that identify all of the “illegal events" that have occurred each week. Our paper is called The Daily Record, and it lists every bankruptcy filed and the lawyers who filed the bankruptcy. Our paper also lists every real estate transaction and the financing source, including private note holders.

The three basic principles of marketing tell us that our database should be cost effective, targeted, and manageable. Having met the first two criteria, let's now concentrate on being effective in using the database that we have developed.

Marketing Your Services to Lawyers in the Bankruptcy Community
I have developed a five-page marketing piece on our letterhead that explains who the principals of our company are and something about our background. Keep in mind that our company consists of my wife Sharon, who is a real estate agent, and me, the lawyer. It is very important to identify yourself and give the professional with whom you are trying to network information on your background. That is creditability. The information does not have to be gaudy but it should be factual. An education and business background in the cash flow industry establishes your ability to work with that professional you are soliciting. (Remember the document I am describing can be used with all professionals and not just with bankruptcy lawyers. It has universal use for all marketing areas.)

The next four pages of this marketing piece describe the different cash flow opportunities where we can help the professionals. After categorizing the type of transaction, I give a brief description of a characteristic deal and what we can accomplish for the professional’s client. This listing is not intended to cover all possible cash flow transactions. Rather, it highlights many deals and leaves the impression that there are many more potential deals available. In fact, I wind up this marketing presentation with a phrase I have coined for the industry: “The only limitation in the cash flow industry is your imagination.”

As I indicated, this marketing piece is printed on our letterhead. Therefore, the cost is quite reasonable. You can take the original to a copy shop, and, for a modest amount of money, have a significant supply of advertising pieces. It looks professional and doesn't cost as much as a brochure. And, as I previously stated, you have an advertising piece that can be used in all your prospecting efforts.

Now that you have your advertising piece, it’s time to use it. You have developed your database of bankruptcy attorneys, and now you are going to prepare a short cover letter introducing yourself to those professionals. When completed, the letter is merged with the database, and a personalized letter accompanies your marketing information. Do you see how the marketing piece can be used universally? My example deals with bankruptcy attorneys. I also network with divorce lawyers because I buy second mortgages generated in divorce cases. Sharon networks with REALTORS® who can be taught to increase their productivity through seller produced notes. The examples of networking are unlimited but all work around the same marketing document and a cover letter.

The communication to the bankruptcy lawyers (or other networking groups) should be followed up with a telephone call within one week. That call is mandatory. It confirms that the professional has received your mailing and hopefully has read your information. This process should tell you that you should not send out 100 mailings each week. Your mailings should be manageable so that your results are effective. Only you can determine the number of follow-up calls you can fit into your schedule each week. Remember, the follow-up call is very important, so don't take on more than you can handle. It would be much smarter to send out fewer letters over a longer period.

When I speak on the telephone to the professional, I suggest a face-to-face meeting. If your budget allows for it, take the person to lunch or meet for a power breakfast (I have no idea what a power breakfast is, but the term is bandied about an awful lot). If that is not possible, I tell the professional, "I would like to take l5 minutes of your time.” Some professionals will set up a time to meet with you while others will tell you they will call you when something comes up, and they have a need for your services. Either way, you have made it to second base.

What do we want to tell the bankruptcy attorney when we communicate with them? We want to remind them that occasionally they will have an individual who has to file bankruptcy, but has a non-exempt asset that needs to be sold before the bankruptcy is filed. If that asset is not sold, the debtor forfeits his interest to the bankruptcy trustee. If the asset winds up in the hands of the trustee, the cash flow professional gets a second bite of the apple. The trustee will probably want to sell that asset. The difference is that the bankruptcy trustee has three fiduciary responsibilities to sell the asset for as much money as he can rise. He represents the creditors, and the creditors are the beneficiaries of the trustee’s efforts. Bottom line — a bidding war can ensue. I have been offered the opportunity to participate in this process, and I can attest that your potential opportunities will be minimized. It is in your interest to create your opportunities before the bankruptcy is filed by establishing your networking relationships.

The scoring run (remember we were on second) occurs when you follow the "rule of seven.” Simply stated, you send follow-up post cards for the next seven months. The postcards give your company name and remind the recipient that you buy cash flows. Marketing experts will tell you that by the time the professional has received the seventh postcard, you and your company are a permanent part of the professional's mental database. With computers, this process has become very simple.

While this marketing technique may seem arduous, it works. Remember, nothing that is worthwhile in this world comes without some effort. Eventually, the professional will call and tell you he has a deal for you.

Types of Business You Can Develop
The types of business you can generate in the bankruptcy area span the entire cash flow industry.

The first deal I ever did was a contract for deed (land contract) that was owned by a bankruptcy trustee. A total of 115 payments remained at less that $100 each month. The trustee's motivation in selling this cash flow was that he wanted to close the bankruptcy estate and conclude the file.

Earlier, I told you that bankruptcy trustees are lawyers who also practice in the bankruptcy area. The same lawyer (trustee above) in his private capacity as a debtor's attorney has sent me five additional deals from the private sector. We have sold and purchased for our own portfolio structured settlements, lottery winnings, mobile home notes, real estate notes, and land contracts. Those of you who heard my presentation in San Francisco know that I encourage you to consider buying these cash flows for your own portfolio. For the most part, these cash flows are small, most falling in the $25,000 or less range.

There is generally good seasoning. The payors are not the cause of bankruptcy. However, the major reason I encourage you to look at these cash flows for your own purchase is that the sale is motivated by time (how soon can you get this done?) as opposed to price.

Remember, if it is sold, the asset winds up belonging to the trustee. Therefore, you can buy the cash flow for yields that will make you very happy.

Chapter 11 Bankruptcies
You have all been exposed to the news that a particular company has filed Chapter 11. What exactly does that mean and what are your opportunities?

Without trying to give you a legal education, a company files Chapter 11 to put its creditors in a holding pattern, while the company tries to develop a plan of reorganization. This process can take from six months to three or more years. The plan of reorganization has to pass mustard with the creditors’ committee and most of all with the bankruptcy judge.

How do we fit in the picture? By definition the company has filed Chapter 11 because it does not have good cash flow. This offers a great factoring opportunity with companies who create business receivables. Why? Because everything is done under court order, and the court can create super priority positions, setting aside or superseding security agreements and UCCs, thereby allowing the Chapter 11 corporation the ability to enter into financing arrangements and protecting the factor's purchase of accounts receivable. I encourage you to make sure that your factoring company understands how to work within the framework of the bankruptcy court.

This past year our industry has been introduced to real estate refinancing and originations. Some of you may have heard of a bankruptcy term called "cram down.” Sounds technical, but basically a cram down occurs when the value of the real estate is less than the amount owed on the mortgage. The court crams down the secured position to the value of the real estate. The amount of debt over the value of the real estate becomes unsecured debt.

Generally, an unhappy creditor wants to divorce himself from the bankrupt company. On the other side of the equation, the bankrupt company may want to see what refinancing opportunities are out there. When the bankruptcy lawyer calls you, you want to be ready to bring the funding source to the table. There are funding sources that understand the bankruptcy area and know how to function within the rules. The bottom line is that there are opportunities that may surface, and you want to be ready to take advantage of them. If one of those situations arises, my recommendation is that you stay in the loop, not as an advisor (let the professional handle the action) but as an observer. You can learn a lot that may help on future deals.

This area provides every one of you with wonderful opportunities. Start marketing yourself to bankruptcy lawyers. You will find the results rewarding.

Howard S. Levitan, DCFS, a member of the Million Dollar Club, is president of Diversified Cash Flow Specialists. He is also a practicing attorney in the Kansas City area.