From paying on time to bankruptcy with increasing FICO score?

[pplinvestor]

This is the 2nd time I see this type notes.  Borrower had been paying on-time until the latest one.  Then, suddenly borrower contacts LC and provides "Bankruptcy counsel information" while FICO is increasing.  What can be the explanation?

https://www.lendingclub.com/foliofn/loanPerf.action?loan_id=1309247&order_id=10140911&note_id=11317980&asking_price=12.00

[New Jersey Guy]

The borrower hasn't declared bankruptcy.....at least not yet.  Being "provided bankruptcy information" doesn't affect his credit score, and neither will the Grace Period he's currently in.

Clearly he is still paying his bills on a timely basis.  For all we know, it's bare minimum payments.

Personally, I think he was in over his head to begin with and all he did was get himself back into credit trouble after he received the loan.  But all we can do is speculate.  There is no way to really find out.  Your guess would be as good as anybody's.

[pplinvestor]

Personally, I think he was in over his head to begin with...

New Jersey Guy,
What red flag do you see in the original listing?  I thought it's a good note.  Annual income $78K, Purpose to payoff the prior higher interest debts, DTI < 20%, Only one inquiry, IRR = 403,... This is type of loan I'm seeking.  I guess just back luck picking this loan. 

What is purpose of providing "Bankruptcy counsel information"?  Try to negotiate with LC to forgive some principal?  Not filing bankruptcy will stop collections by the lenders.  Is "providing bankruptcy counsel information" a ploy by those companies who purport  helping people who in a lot of debt while collecting thousands dollars for such services?

[New Jersey Guy]

"What red flag do you see in the original listing?"

You want my personal opinion?
Looking for a "Red Flag" after a loan begins to go down the toilet is a total waste of time.  It's something you do before buying a note.  It doesn't make any sense to go back and look at his profile again.  It's like trying to get today's news off a 12-month newspaper. 

He lost his job.
He went on disability.
His wife had an affair, screwed him over and took everything.
He lost everything in a tornado, flood or hurricane.
He started a new business and it failed.
His company went under and he was forced to take a job at McDonalds.
He racked up $100K in medical bills.
He lost his life savings in Las Vegas.
He became a drunk.
He became a hippie.
He joined a religious cult.

These are just a few things I can think of that you won't see in his profile.  So if you really want to find out what happened, call the guy and ask him.  Otherwise, he just falls into that small percentage of defaults they we've all come to expect and can never explain.

[GS]

I like to look at notes that went bad, since you can learn from them, and tinker with your filters.  In fact, I often look at "30-90 days late" notes on Folio, just to see how many would have made it past my filter.  I've learned a lot from that.

FWIW, the original credit score wouldn't have made it past my Filter ...  660 is rock bottom for LC, so 665-670 is a red flag, IMO.  There was one Delq., but it was 70 months old and would have made it past my filter.  Other than that, it looks good to me, and increasing credit scores is a good sign ... no telling why the guy seems to be heading for bankruptcy ... but medical bills are now the most common (and probably unforeseeable) reason.

[yaoyao]

I had a couple of notes just like that.  It had perfect payment and high FICO, but suddenly the borrower filed bankruptcy.  When I look back, I would buy the notes again.  There is no red-flag at all.  Now I pay attention to "Borrower contacted Lending Club".  If it doesn't come with "borrower promised to pay", it is a dangerous sign.  I would sell it immediately.

[New Jersey Guy]

"660 is rock bottom for LC, so 665-670 is a red flag, IMO. "

The 665/670 score is one of the reasons it garnered the 17.2% interest rate.  It's one of the prices you pay if you're going to dabble in higher risk loans.  However, I'll show you some A-Grade, low interest loans that went south.

665/670 might be Lending Clubs bottom.  It doesn't mean it's bad credit.  On the contrary.  That score is good enough to obtain credit just about anywhere without much hassle.  I don't consider 665/670 a red flag.  Interest Radar rated this loan a 403/Medium.

I would have invested in this loan.

[PennySaved]

The original loan info does not look too bad, except now I only lend to inquiries=0 after reading some of Peter's advice.  The QAs are interesting, this person admits to paying $29,000 on interest alone on her credit cards.  And paying a lawyer with a credit card over 10 years ago with debt still not paid off.