Bankruptcy Law for Accountants

Hanson, Randall K., Smith, James K., The National Public Accountant

Bankruptcy filings are once again increasing at an alarming pace: 1.5 million bankruptcy filings are expected this year and an estimated $40 billion in debt is expected to be discharged by financially troubled debtors. With the alarming number of filings, it is clear that accountants need to be keenly aware of bankruptcy law. While no accountant needs to be a bankruptcy expert, it is important to be current on developments in this area of the law so that a referral can be made when necessary. Clients may be considering bankruptcy protection, or customers of clients may well be seeking bankruptcy relief.

New bankruptcy legislation has been seriously considered for more than five years, and the credit card and banking industries have aggressively lobbied for reform throughout this time frame. A reform package was nearly in place when the terrorist attacks occurred and halted the legislation. With the passage of time, bankruptcy reform has returned to the forefront.

A bill appeared imminent during the summer of 2002, but right before the summer recess, the bill was pulled from consideration because of a dispute over whether or not certain judgments involving antiabortion protest activities at abortion clinics would be dischargeable in bankruptcy. This political issue polarized the legislative body, precluding the passage of the reform package. Bankruptcy reform is not dead--it is just being delayed once again.

Even with the legislation setback, the hazy picture of bankruptcy reform is becoming much clearer. Several issues still need to be resolved, but the Senate and the House have basically reached an agreement on what the Bankruptcy Reform Legislation will look like. President Bush has frequently indicated that he would sign reform legislation when presented to him.

OVERVIEW OF THE PRESENT BANKRUPTCY SYSTEM

There are three primary chapters of bankruptcy law: Chapters 7, 11 and 13. Chapter 7 provides for a discharge of debts and a fresh start for debtors who feel they cannot turn around their financial situation. Chapter it provides for a business reorganization, to allow business debtors in financial trouble to develop a viable plan for recovery without discharging debts. Chapter 13 allows wage earners to develop a plan for recovery without discharging all debts.

Chapter 7

Chapter 7 bankruptcy proceedings are the most alarming to businesses because these proceedings result in the complete discharge of valid obligations. The distressed debtor is given a …

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Publication information: Article title: Bankruptcy Law for Accountants. Contributors: Hanson, Randall K. - Author, Smith, James K. - Author. Magazine title: The National Public Accountant. Publication date: February-March 2003. Page number: 4+. © 1999 National Society of Public Accountants. COPYRIGHT 2003 Gale Group.

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