When we receive notice that a borrower has filed bankruptcy, we stop all automatic monthly payments on any related loan(s) and defer any other collection activity. Investors who committed funds to the loan can view the status update by reviewing the Note Details through their online account.
We then determine whether we have a basis to object to the inclusion of the debt in any bankruptcy action (e.g., based on the time between loan origination and bankruptcy filing).
If the proceeding is a Chapter 7 bankruptcy filing seeking liquidation, we attempt to determine if the proceeding is a “no asset” proceeding, based on instructions we receive from the bankruptcy court. If the proceeding is a “no asset” proceeding, we take no further action and assume that no recovery will be made on the borrower loan. In all other cases, we file a proof of claim involving the borrower.
If we can recover any funds from the bankruptcy, we’ll apply the amount received as a payment toward the remaining balance of the loan. If we are unable to recover any funds, this would be a loss for the investors who funded the loan.
If you would like to learn about the risks of investing in Notes, read our Prospectus, an official document detailing all the key information for the investments we offer. You can find the Prosper Prospectus at the bottom of any page at www.prosper.com.