Earlier this fall, the Congress passed massive legislation that changed the nature of bankruptcy proceedings for both individuals and corporations. The dust is just beginning to settle on the new bankruptcy rules, but already some opportunities for financial professionals have surfaced."On the corporate side, there are going to be a lot more opportunities for the accountants that represent the company to get involved, because there are going to be stricter guidelines required of companies that are trying to go into bankruptcy," said Ron Fink, president of New York-based Tono-Bungay Consulting. "And they're going to have to have those requirements met very quickly," he added.
Fink, a CPA, attorney and Certified Turnaround Professional, works with many clients who are experiencing financial difficulties. One thing he has noticed since the new bankruptcy legislation went into effect is that preparing for a bankruptcy filing "is definitely requiring more coordination in advance between accountants and lawyers, because you can't go into a bankruptcy today without having a pretty good idea how you're going to come out."
Under the new rules, tax returns, financial statements and budgets all must be prepared in advance.
"Before you can go in, all the preplanning for a bankruptcy has to be done," said Fink. "In the past, people would file the bankruptcy, wait a week or two or three, and then file the schedules," he said. "You would have to file monthly operating reports, and in a lot of jurisdictions nobody cared. Now it is part of the law that the U.S. Trustee's Office must monitor these reports. If they're not handed it, the case must be either dismissed or converted to a Chapter 7, which is going to give a lot more upfront work to the smaller accounting firms on the smaller business bankruptcies."
In addition to greater visibility for accountants in the preparation stage for bankruptcy planning, the legislation has incorporated new requirements for financial awareness training for personal bankruptcy candidates.
The stricter bankruptcy legislation was signed into law this spring, after years of intensive lobbying by banks, credit card companies and retailers, and constricts the ability of consumers to dissolve their debts.
A flexible means test to assess individuals' ability to repay their debts was part of the package. The formula takes into account whether the filer earns more than the state median income and can repay at least $100 a month of their unsecured debt over five years. Legitimate expenses such as food, shelter, clothing, medical care, transportation, attorneys' fees and charitable contributions are taken into account in the analysis.
However, the new law, which became effective October 17, has come under assault for being too restrictive, particularly in terms of the heavy paperwork and filing requirements that it involves. It was the first major revision to the bankruptcy laws since 1978.
More than 500,000 Americans filed bankruptcy petitions in the two weeks prior to the date when the new provisions took effect. This compares to approximately 60,000 petitions filed in an average two-week period in previous years.
A single, solitary CPA
Before someone can even file for personal bankruptcy, a credit counseling session must be completed. And before the bankruptcy can be discharged, the candidate must complete a personal financial management course.
The Justice Department rules are strict, however, regarding who can offer these counseling and training sessions. In particular, the credit counseling session must be presented by a not-for-profit budget and credit counseling organization that has been approved by the U.S. Bankruptcy Court.
But the financial management training is not limited to not-for-profit providers. This training can be provided by someone who is certified in any number of different ways, including a CPA, a CFP, someone with a general teaching certificate, or someone certified as a credit counselor or a registered financial consultant.
Fink suggested that accountants might be priced out of the market for providing financial management training when you compare their fees to those of non-accountants who might offer the training.
A quick examination of the Justice Department's list of people and organizations that have been approved for the training reveals, amazingly, that only one CPA in the country is a member of the list.
That CPA is Lamar Purvis, a sole practitioner in Fitzgerald, Ga. "An attorney friend of mine called me," explained Purvis. His friend, a bankruptcy attorney, suggested that, "there may be an opportunity if you want to consider it."
"I'm a small businessman, and if I can branch out and something presents itself, I'll see what I can do." Purvis prepared the personal financial management training material requested by the Justice Department and submitted it for approval. A few weeks later, he found he had been approved to offer the training.
"The education end of the bankruptcy law is still in its infancy stage. I don't know if this is going to be a booming part of my business or not," he said. And of course, the need for this training is still a few years off. People who filed for bankruptcy in Ocober before the new law went into effect aren't required to meet the new education standards.
"Everybody was thinking that this was going to be a great boon for accountants," said Fink. "I think that type of planning is going to be left to the not-for-profit credit counseling agencies."
"You know, everybody in America who's going to file bankruptcy has already done it!" added Purvis.
