Advanta Files For Chapter 11 Bankruptcy

Posted by: John Tozzi on November 09, 2009

Advanta Corp., once one of the largest credit card lenders to small businesses, filed to reorganize under Chapter 11 bankruptcy protection Sunday night. The Spring House (Pa.) company’s main operation that issued credit cards, Advanta Bank Corp, is not part of the filing. But Advanta said that unit doesn’t have the capital required by regulators and may be taken over by the FDIC.

Advanta listed assets of $363 million and debts of $331 million, and said that over time it would not be able to meet its obligations.

Banking entities in distress are handled by their regulators, not in the bankruptcy courts, which is why Advanta Bank Corp. isn’t part of the filing. Advanta said the bank subsidiary, which cut off all new lending in May, is currently collecting $2.7 billion in credit card receivables from 360,000 account holders. (Advanta’s statement is here.) Advanta also said that the parent company deliberately allowed the Advanta Bank Corp. to fall below regulatory capital requirements to preserve the funds for the parent company’s creditors. That means Advanta Bank Corp. — which is the entity that 360,000 small business borrowers still owe money to — is likely to be taken over by the FDIC or sold off to another bank shortly. Borrowers trying to renegotiate their payments with Advanta could be negotiating with a different bank in the near future.

Advanta became notorious among small business borrowers for offering credit cards at attractive low interest rates and then raising APRs steeply, often to over 30%. The company stopped all new credit card lending in May and entered into a settlement with the FDIC over the interest rate hikes, which the regulator said constituted unfair and deceptive practices. (Advanta didn’t admit or deny liability in the settlement.) When settlement checks began arriving in September, the average settlement of $131 seemed laughable to many business owners who were still paying sky-high interest on thousands of dollars of charges they made under the initial low rates. At least one group filed a lawsuit seeking class action status. (An Advanta spokesman declined to comment about any pending litigation.)

Advanta isn’t just in trouble with borrowers. Shareholders have seen Advanta stock drop from a high of over $30 in 2007 to pennies today. Jeff Blumenthal of the Philadelphia Business Journal has a good run down of the suits against Advanta, including a class action by common stockholders. From his story:

The complaint says Advanta concealed that its assets contained tens of millions of dollars worth of impaired credit-card receivables for which the company had not accrued losses; it had been extremely aggressive in granting credit to customers without verifying the customers’ ability to pay, to such a degree that by last summer, Advanta customers’ default rate would be almost six times worse than industry average; Advanta’s manipulation of its cash rewards program angered customers and caused it to lose good, creditworthy customers; Advanta’s credit receivables were unduly risky because of the company’s practice of issuing credit cards to small business owners without, in many instances, verifying income; and Advanta failed to properly account for its continuing delinquent customers and the credit trends in its portfolio, resulting ultimately in large charges to reflect impairments.

It’s unclear whether Advanta will have anything left for plaintiffs to collect if these lawsuits go forward. The company filed for Chapter 11 reorganization, but if the FDIC takes over the banking subsidiary than most of Advanta’s operations are gone. Chapter 11 may be a way of doing an “orderly liquidation” rather than a true reorganization.

One interesting note: If the FDIC takes over the bank subsidiary and has a claim against the Advanta parent company for failing to maintain minimum capital requirements, that claim gets priority over other unsecured creditors, according to Robert Lawless, bankruptcy law professor at University of Illinois and blogger at Credit Slips.

[Update: An earlier version of this post said that Advanta Bank Corp. fell below FDIC capital requirements. The capital requirements are actually set by banking regulators in Utah where Advanta Bank Corp. is chartered. It’s also worth noting that as of June 30 about 2% of U.S. banks were considered undercapitalized, according to the FDIC. Regulators push banks into FDIC receivership based on different triggers, and in this case it’s up to Utah authorities to determine if and when they will do so with Advanta Bank Corp.]

Reader Comments

George

November 9, 2009 03:02 PM

I owe them money, and it's at 0% interest. Kind of paints the picture, doesn't it?

Chris

November 9, 2009 05:18 PM

I've been trying to settle with them for a while. I've come up with most but not all of the settlement funds. They say I have until Nov. 11 (just 2 days) to come up with the rest. But since they've gone BK, should I still continue with settlement? Or does owing them anything become a moot point if the FDIC takes over?

Gary

November 9, 2009 10:10 PM

This bank was as evil as they get... Did not honor any of their agreements we had. When will corporate america learn that profits do not follow ripping off of customers. Ripping off a customer is a short term gain. Long term gains follow companies that deliver consistent and trustworthy value. A bank use to be a trusted source an entrepreneur could build a mutually rewarding relationship with over time. Not so sure that exists in today's banking marketplace. So have fun in bankruptcy court Advanta, you earned it.

Bob

November 11, 2009 12:19 PM

In order to agree to settle your debt, make advanta agree to reasonable terms and interest rate. If you owe them money, then agree to pay that debt, but only if they are reasonable.

Carolyn

November 16, 2009 01:38 PM

I recently cashed out a CD and Advanta stopped payment on the check that was issued. That money and the money in my other CDs is now lost.

Jim

November 16, 2009 03:42 PM

Shame on them! All the people from India who are "now" going to loose their jobs who called us 30 times a day.
The goverment should have stepped in long before the 50+ thousand complaints.

AMEN GARY! Great comment

Jo Ann

November 18, 2009 08:15 AM

I had made arrangements to pay Advanta
the amount I owed and they were going to
take it out of my checking account. They stopped and now they have turned me over to a collection agency that is threating me with involuntary bankruptcy

Pat

November 20, 2009 12:58 PM

Just received my last statement of 1.41
last month I owed 5.41, I accidently wrote the check for 4.00 instead of writing new check I figured I closed my account this month for 1.41, instead they slapped me with a 20.00 charge. I feel this should be waived i do not pay a company more when they turned me away months ago. I beleive they filed for bankrupcie in May of this year. If I dont pay will this go on my credit. customer service and supervisor would not waive it.
Pat

Mike

November 23, 2009 08:14 PM

Last year they raised my interest from 8.9% to 34.9%! It annihilated my business and I was forced to default. I have received many different calls from different collection agencies threatening legal action and subpoenas but apparently no one is willing to pony up the filing fee (I live in CA where filings of this nature start at 1K in fees). Ahh, toxic debt. My credit is wrecked for a few years, but not beyond repair.

I am so glad Advanta is eating it! I will raise a glass of wine and toast their pending receivership.

Good riddance!

Dick Kirk

November 26, 2009 12:12 PM

I too have been fighting with Advanta for over a year a half. They do not even call you back even after many offers to settle. I am estatic that they are going to bankruptcy as they have forced many small business owners into dire financial straits because of their crooked business practices. Please do not pay them anything as the only way they respond back to you is if you stop paying them. I also want to become involved in any class action suit against them. They should have been stopped months ago because of the many complaints against them. Our credit damage can can be repaired. If the credit bureaus realize that only one company Advanta is the only one who is in default, common sense says it is their fault for this mess. Most of us had perect credit scores until now.

Jim

November 30, 2009 04:14 PM

RE: Carolyn, There is no way that you can loose money on a CD from Advanta Bank Corp. unless your balance is over the insured amount. They are insured by the FDIC for up to $250,000.00 per individual. If the FDIC takes them over they will give you your money for up to the insured amount. If another bank takes over Advanta Bank they have the option of honoring your CD interest rate or giving you your money back. I had one of my banks, Corus, bought out by B&M Bank and they did not wish to pay my current interest rate of 2.59% (12 month term) so they sent me a check for the principal and interest. I had a credit union bought out by another credit union and they choose to honor my interest rate of 5.00% (5 year term with three months till due). As long as your CD is with the Advanta Bank Corp. your principal and accrued interest is safe for up to $250,000.00. However, if you have one of those goofy stock fund, stock money market fund weard "CD" things that is not insured by the FDIC then you are out of luck.

Anthony

November 30, 2009 05:44 PM

RE: Jim, I was under the impression that the advanta investment notes were not insured, thus making them very risky. Do you have any factual information to back up your claim that the money is insured?

Jack

December 3, 2009 03:37 PM

I believe Advanta is not FDIC insured. It even says so on the CD notes. Does anyone know if we will lose all our money in our CD's? Is everyone filing a claim form?

johanna smith

December 4, 2009 12:20 PM

thought you might find this interesting

Regine

dolores

December 10, 2009 12:56 PM

For all of those that have invested in the uninsured investment notes. I pray for us. I did not make a good investment. I called the company in June 09, asked the representative at Advanta, "How is your company doing financially, she said "We are strong and have not had any problems." I had an uncle that invested in Advanta and made tons of money. He did take his money out of Advanta about 3 years ago, at the age of 70 he did not want to put his money at risk. I did not see anything that was adverse regarding advanta so I invested $42,000.00 half of my retirement. Now all I have is a frozen account and all of these horrible stories about this company. I am so depressed. Is there anyone out there that can offer me some comfort inregard to how much I might expect to have returned to me.

richard

December 14, 2009 09:17 AM

Have tried repeatedly to get interest adjustment - folks in India will not forward anyone to US offices in Phiily, apparently. Have never defaulted on any debt, is this the only way to get them to offer lower terms? What time frame have others experienced in getting a written settlement offer?

Universe Auto

December 18, 2009 04:08 PM

This company is unbelieveable. My husband just got off the phone with one of them and I'm considering cancelling my scheduled pmt. He wouldn't answer my husbands question and when we hung up on him, he had the balls to CALL back?!! Hey Advanta? Isn't Karma a B*tch? We will default and see what happens. I can't pay it so take me to the default rate. But wait, I'm already at the default rate like everyone else. I'll take the hit on the credit report, it's only this card.

Robert

December 24, 2009 02:07 PM

Please give me some input of comfort
I have over $50,000 in CD's some are due in 2010 and some in 2012 How can I cash them in ? Is my accounts froze ?

Robert

joe

December 29, 2009 03:05 PM

RE: Jack, Advanta CD's are FDIC insured, but their Investment notes are not insured. For those trying to get a local customer service representative, good luck...they were layed off earlier this year. All they really have are the India representatives.

Joe

December 29, 2009 03:08 PM

Robert.. have you tried the 800 number on the Advantabankcorp.com site. At the least, your CD's are covered by the FDIC.. you should not be have any issues even if the FDIC took over. To cash them in, there are forms on the site I mentioned above for early withdrawal. take a look... good luck.

Lou

December 30, 2009 02:35 AM

I have two investment notes with Advanta Corp. Is there anyone out there who knows what we should be doing to try to get at least some of the money we invested back?

vito z

January 2, 2010 06:53 AM

Folks, having personally invested in Advanta's investment notes in the early part of the last decade, and deliberately shunning them as recently as a year or two ago (despite--indeed,because, of the interest rate disparity with other distressed lenders), I can explain a lot. First, no, these notes are not insured-never were. CD's from their bank ARE insured,and Advanta stopped payment on checks because they were insolvent,but they should be FDIC insured (notwithstanding the recent announcement that FDIC's own reserves are precariously underfunded). Anyway, the simplest way to tell if a company will meet its obligations is to examine its balance sheet, not too much different from a checkbook set of entries. If a company's current assets(leave out "inventory", which is hard to liquidate in a recession,and "plant and equipment",for much the same reason) can pay all liabilities current and future, (called a "quick ratio"), you're fine with this company. Trouble is, the company's balance sheet was bleeding red ink as far back as five years ago, I think. Any noteholders out there get a solicitation from the company to "exchange" notes for preferred stock in the company? Watch out. Preferred stock is even lower on the creditor scale than the notes, which are subordinated (last in line for credit) among bondholding credits .A sure sign of liquidity problems and indebtedness, you'd all have been wise to have ridden your notes to their first possible redemption (i.e., maturity) and then GET THE HELL OUT!!! Lessons learned: unless explicitly guaranteed--and check the health of the guarantor, via the above balance-sheet exam--tread lightly. Use the shortest maturity available if possible--you can always renew. And if interest rates seem way out of line,even among the "predatory lenders", that company is even more desperate to grab some cash.
(Hey, not bad for a letter carrier with no college,eh?)

Vito z

January 2, 2010 07:01 AM

RE: Chris.
Yes, settle, or your credit rating may eventually force you into BK. that's how these things happen.

john

January 11, 2010 05:25 AM

I have a federal lawsuit against the bank. they allowed my identity to be stolen in 2006 and allowed my office girl to steal $228k via the credit card. they refused wrong doing and refused to pay event though they never did a proper underwriting review and she has been indicted by grand jury on 4 felony counts....what you are seeing is typical of that type of poor process management

S

January 19, 2010 12:54 PM

This company is the worst of it's kind. We have an account with them and were never late on payments. All of a sudden they raised the int. to 32%. I call and call and only get these india people who I cannot understand if my life depended on it. I told them that the business is going bankrupt and there was no money to pay them, especially since they raised the interest so high that it almost makes it impossible to pay the debt off anyway; it's $4,700. They told me they don't care if the business is going bankrupt; little did I know then but do now that they are too; they want their money, plain and simple. Why should we have to bail them out; who is going to help us? ANyone ever actually get anyone on the phone in Pennsylvania? I'm trying to cal lthere and see what I can do about this. I do not want to claim bankruptcy over $4,700. Any advice out there?

Mark

January 21, 2010 07:47 PM

I'm so glad these credit crooks went belly-up. They definitely deserved it. They've hiked my APR to 29% for no reason. I've decided to no longer send them payments on my account. They can go f*ck themselves. My FICO will teke a hit, but I could care less. The banks unfairly take us hostage with bogus FICO anyhow. Everybody should stop paying these thieves...

ann

January 25, 2010 02:48 PM

I also have some uninsured investment notes. i have received a mailing from a company talking of buying them for 8-15 cents on the dollar. Did nothing with it. Any ideas if its more of a scam or something to look at?

Vic B

January 27, 2010 12:09 AM

I had a credit card with Advanta for almost two years at a 2.9% rate. On the day that the payment was due, I called their offices (India) and they allowed me to make a payment over the phone which would allow me to avoid the late payment fee and keep my 2.9% rate. The CSR who handled my call assured me that I would not be late on my payment. Well low and behold, when my statement arrived, my interest rate jumped to 29% which is unheard of and there was a "late fee" on my statement. They are nothing but a bunch of liars! My question is do we still make the payments to them even though they have filed for bankruptcy? Any suggestions?

Bill

January 29, 2010 04:23 PM

Re:Ann and the 8 to 15 bid

I have no specific info on Advanta unfortunately. 8 is too low, and 15 is higher than any bids I have seen quoted. In general, if someone is sending directed letters to noteolders, there could be more here than meets the eye.

Marcello

January 31, 2010 03:39 PM

I have a 25K balance with Advanta. I had them for years and have brought my credit line to the max & paid it down many times. Like every one else, they took my rate from 7.99 to over 30%. I didn't pay them for 3 months to get there attention. They did hit my personal credit report with a 60 late, but I was able to make a deal for 1 year at 3.99%. Don't know what is going to happen after a year, but I am doing everything I can for them not to trash my credit report. I wish there was another way, because they stole from me for months with there 30+% interest rate that I did pay. I can't afford to totally pay it off for now.

Any comments on how else to deal with Advanta in paying there balances????

Jim

February 4, 2010 02:02 PM

I came across a 2 year AdvantaCorp subordinated note my wife had bought in '91' with a maturity date of '93' @ 8.49%. It got filed with other papers and was just discovered. I called 800-223-7074 and discovered they were in Ch.11. I was able to speak to a customer service rep that advised me there was no record of the note. They only have to keep records for 7 years. I questioned why records would be destroyed on a note that was not paid.
Her reply was that the certificate would not have to be surrendered to be paid and that we probably were sent payment at maturity. I said we would have remembered such a payment. So, says you was her answer. Interestingly, I have maintained our own personal records and found no receipt of payment at the maturity date of Aug.93 or its' 2 year extended date which would have been Aug. 95. They and AdvantaBankCorp
are getting what they deserve. If I were the judge they would be liquidated and the officers sent to jail. As for the unfortunate small businesses that were raped by loan shark interest rates. Amnesty from any further interest and a reduction of their principal based on payments above and beyond the original interest rate.

john

February 15, 2010 10:50 PM

does anyone know if adavanta has filed a lawsuit against anyone to collect credit card debt..has anyone negiotated a settlement with advanta on credit card debt..how much are they taking on the dollar for settlement of the debt?

Richard

February 18, 2010 02:00 PM

I have spoken to cardholders personlly who advised me they settled for 20 cents on the dollar cash settlement. Perhaps others could share their first-hand experiences?

sam

February 26, 2010 02:59 PM

I settled with them for 20 on dollard
before 60 days late i was called them every day to settle their answer was no we do not have a settlement package for you .I got the idea didn't pay for 2 months ,they called me few times a week
and I was able to settle with them 20 c on dollars.and got that in whritting .
Good luck all and what ever you do dont pay them

perri bitton

February 27, 2010 02:07 AM

my best advice. do not pay them.
you are allowed to put an explanation on your credit report.
every body knows about adventa.
they are the worst . i am not paying any more.

Matt

March 2, 2010 12:06 AM

I am willing to bet that everyone who posted who has an issue with Advanta did SOMETHING to warrant their; late charge, increased interest rate, collection calls, etc. Banks do not do this for no reason at all. If everyone were being totally honest and transparent, you charged something, you didn't pay or were late (there are no exceptions for "accidentally" being late) you were just LATE! Then Advanta raises your interest rate per their account agreement with you (that you didn't read most likely) and now you're mad. It is this righteous indignation by the consumers of America that has gotten us into this mess. Should the banks have been able to have the rules they did? Probably not. But they were allowed at the time the rules were made, and no one cared. Only when everyone started defaulting on their loans and they put those rules into practice did anyone even CARE. Including the Federal Govt. Now, they are all running around conveniently changing the rules and blaming the banks. The banks were out there to make money, it was no secret. So my advice is, pay your debts, quit being a dead beat and get over it. Truth hurts doesn't it?

perri

March 3, 2010 09:42 AM

i was never late matt. never ever always pay on time.
any body out there who pays advanta is making a big mistake. put a disput on your credit report regarding advanta. do not listen to matt advice who others who tells you to pay.
i told advanta to reduce the interest rate to 0% and then i will pay. so we are working on it. together we will force advanta to be resonable.

A-hole

March 7, 2010 01:23 PM

Hey matt, what bank do you work for? I had a BUSINESS credit card with these evil jackals and was NEVER I REPEAT NEVER late on a 20K bal at 8% and always paid over minimum at least 1k per month. when my rate flew to 23% I called and they said "market pressures" were the reason. Well, market pressures are keeping me from paying my bill, I sent them a check for 2 cents (get it?) and don't really care if they ruin my credit. I paid $6000 in INTEREST CHARGES last year '09. Got a settlement check for $600 last month in the class action suit. Bend over and take it, you BASTARDS!

Shirley Smith

March 10, 2010 10:52 AM

I owe them money also they want settle with me, they also increase my interest rate from 7.99% to 24.99%. If they are bailed out by the government we should get some form of release also.

Decatur Ga.

Loan-Sharked

March 10, 2010 10:56 AM

Hey Matt, you obviously must be an Advanta Operative. I too was never late before these loan sharks decided to raise my interest rates. Advanta is crooked and you should think twice about trying to defend them. But then again, if you are an Advanta Operative, I can see why you're defending them... job security.

big t

March 10, 2010 11:40 AM

When I stop paying and they call what should I tell them?
I ain't paying and hang up?
I don't have any money?
When you lower my interest rate I will pay.

perri

March 11, 2010 12:10 AM

hey people. they call me now almost every day offering 16.99%. i refused and i told them that i will pay only at 0%. in my credit report i put an explanation. dont worry so much about your credit report, worry about your dignity. dont let a bunch of crooks robe u at day light. simply stop paying them.

perri bitton

March 20, 2010 04:20 PM

be strong people. do not agree to any settelement less than 0% plus they have to remove the negative from credit bureau. all has to be in writing agreement. if they dont agree tell them to sue you.i am orgnizing a petition to send to the senate finance comitee plus a class action law suit.
anyone interested to join please email to
pzion7@gmail.com

TECHNICAL MACHINING SERVICES

March 22, 2010 01:33 PM

LIKE ALL OTHER SMALL BUSINESS'S
MY CARD GOT CANCELLED. WHEN I CALLED THESE THEIVEN BASTARDS THEY INFORMED ME MY CURRENT INTEREST RATE HAD JUMPED TO 34% AND WOULD NOT NEGOITATE ANYTHING LOWER. I'M GLAD THEY ARE BITING THE DUST. I'M SUPRISED THEY DIDN'T GET SOME "BAIL OUT" MONEY ALSO TO GO WITH THE MILLIONS THEY'RE STEALING FROM HARD WORKING SMALL BUSINESS'S LIKE ME.
WHY CAN'T THIS BE STOPPED? THIS IS ROBBERY WITHOUT A GUN!!!
WHAT CAN WE DO??????

Randy from Houston

March 22, 2010 02:50 PM

Matt, you're a moron. They raised my interest from 9.99 to 34.99. I have never been late, never over limit, yet they raised my interest for no reason. They would never tell me what the reason was. Advanta is the worst of the worst. I always paid more than was due since I used it for a small business.

So what happens now that the FDIC has taken over Advanta Bank Corp?

Gary Chowansky

March 27, 2010 07:31 PM

Matt, you obviously work for a bank. You seem to be disconnected with the real world. Yes believe it or not Matt, banks do actually screw anyone they can. I will be done paying off my balance soon. At that point in time I will become totally unprofessional and ask for the highest possible management person that I can find, and tell them to "BEEP OFF". It is a bitch when your day comes. Oh well.

Jack

March 29, 2010 02:33 PM

I'm thinking about not making my scheduled payment. The credit card was opened through an LLC that I personally guaranteed. Can I settle with no blemish placed on my personal credit report? The LLC is shut down with the state and I'd like to settle. Should I just not make my scheduled payment?

Loan-Sharked

April 14, 2010 10:29 AM

Don't know how this helps everyone, but effective March 19, 2010 the FDIC has closed Advanta Bank Corp. Here's the URL to the FDIC's press release: http://www.fdic.gov/news/news/press/2010/pr10058.html

chris

April 17, 2010 12:50 PM

Are there any lawsuits being formed by consumers against Advanta? I would like to be included.

wendy

April 19, 2010 01:29 PM

Yes, believe it or not they took mine from 7.99-34% They will not negotiate...can't make them understand either since their English is so poor! Do we need to pay them off now that they are in bankruptcy or is it moot point as previous person asked? I do not want and can't afford to ruin my credit over these jerks!

wendy angelo

April 25, 2010 12:54 PM

I am also a victim of Advanta. My interest rate is 25.99%. I have written three letters asking them to lower my interest as I am paying more in interest than in principal. They have never responded to my letters. If someone out there can let me know my rights, if I can quit paying because of their bankruptcy, please let me know.

George

April 27, 2010 07:16 AM

Wendy - they won't budge until you get about 90 days behind. Then they offer to reduce interest to 16.9%, then to 9%, then to 0%, eventually they offer 50% settlement (this is after 90 - 120 days & they ding your personal credit). If you are really struggling financially, then you will reach a point when you realize your credit score is just not that important. Stop paying Advanta and try to store up money for a settlement.

Lyndy

April 29, 2010 12:45 PM

This is to Matt:
Sorry not sure what land you live in but I was never late, always paid extra and they jacked up my rate. But Capital One did the same thing. I've had my CC for 15 years had a 8.9 rate, never late on any payment and come the first of the year my rate went to 17.9. I have called them repeatedly so sorry they are. So Capital One can also be thrown on the boat of thieves with Advanta

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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