By CPA Trendlines Research
Bankruptcy is a financial and emotional trauma. The effects go well beyond the bottom line.
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A bankrupt client needs not only financial advice but compassionate guidance tailored to the situation and the client’s family. Here are 10 topics a bankrupt client needs to learn more about.
1. Understanding Bankruptcy
Explain what bankruptcy means, the different kinds, the legal process involved, and its implications on the client’s financial situation and credit record. Make it sound doable and the beginning of something new.
2. Types of Bankruptcy
Clarify the differences between Chapter 7, Chapter 11, Chapter 13 and other types of bankruptcy. Explain which is most appropriate for the client’s circumstances.
3. Assets and Liabilities Review
Review all assets and liabilities to understand what might be exempt from liquidation and what will be used to repay creditors. Note that the client may not understand what constitutes an asset and a liability.
4. Impact on Credit Score
Discuss how bankruptcy will affect their credit score and their ability to obtain credit in the future, as well as strategies to rebuild credit over time. Emphasize recovery and the future.
5. Protection from Creditors
Explain how filing for bankruptcy provides immediate protection from most creditors (an automatic stay) and stops collection actions temporarily. Offer assistance to stop collection actions.
6. Future Financial Management
Provide guidance on creating a budget and improving financial habits to prevent future financial difficulties. The whole family will need to understand this. Monitor adherence.
7. Obligations During Bankruptcy
Explain the client’s obligations, such as attending credit counseling, meeting with a bankruptcy trustee, and disclosing all assets and debts accurately. Explain that these obligations are intended to help, not punish.
8. Debts That May Not Be Discharged
Inform the client about debts that typically cannot be discharged, such as student loans, certain taxes, child support and alimony. Work out a plan for continuing payments as soon as possible.
9. Tax Implications
Highlight any potential tax consequences related to debt forgiveness or asset liquidation during the bankruptcy process. Provide any necessary forms. Explain IRS policies, programs and opportunities for negotiation.
10. Life After Bankruptcy
Offer reassurance that bankruptcy is a fresh start and discuss actionable steps to rebuild one’s financial life, such as starting an emergency fund, avoiding unnecessary debt and maintaining financial discipline. Here the accountant is almost a psychotherapist, warding off despair and depression and inspiring a new lifestyle.
The accountant may also suggest consulting with a bankruptcy attorney for legal advice and working with financial counselors to regain stability. Client may also need family counseling, emotional therapy, maybe treatment for an addiction. The root cause of the bankruptcy needs to be understood and discussed.