Your typical client in financial distress will come to you with a wide array of financial challenges. They may have credit card debt, they may be in foreclosure, they may have high checking account overdrafts, or they may be personal guarantors on a business line of credit or commercial lease.
Although a client’s first inclination would be to “work out” each financial problem separately, how do you know when to advise a client that he may be able to sweep all of his financial debt into one bankruptcy case?
A Chapter 7 bankruptcy case is designed to discharge most consumer and individual debt.
A Chapter 13 bankruptcy case is designed to protect your assets (your home and business) while paying only a portion of your debt and discharging the remaining debt.
In the past two years, the most common consumer and individual debts that have been discharged by my clients include:
- Credit card debt
- Foreclosure deficiencies
- Medical bills
- Personal lines of credit
- Personal guaranties on business lines of credit and commercial leases
The following debts are usually not dischargeable in bankruptcy:
- Recent tax debt
- Student loans
- Alimony or Child Support
- Criminal penalties and restitution
- Fraudulent transfers of assets
The following assets may be wholly or partially protected in either a Chapter 7 or a Chapter 13 bankruptcy case:
- Pensions and IRA’s
- $50,000 worth of home equity per spouse
- Certain automobiles
- Bank accounts
- Personal injury settlements
Protecting a client’s assets while discharging his debts can be a complex balancing act. Although it may make sense to deposit $100,000 into an IRA or Trust to escape a client’s creditors, such an act could jeopardize a Bankruptcy case and even lead a Trustee to recapture the assets and deliver them straight to creditors.Many times, a global solution to a client’s financial situation is preferable to a piece-meal solution. Often, filing a Bankruptcy case provides that global solution. Therefore, whether you are an accountant or an attorney, you will be able to counsel your clients more effectively regarding their financial crises.