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November
21, 2001
Regarding: Bankruptcy
Why Bankruptcy?
When people or businesses become heavily in
debt and cannot meet their financial obligations, declaring
bankruptcy is sometimes the only solution.
However, there may be alternatives –
1.
first ask yourself why you are considering
bankruptcy,
2.
second be certain you know the risks to your assets
in bankruptcy and,
3.
third be certain you understand there are some (and
possibly all) debts you may still owe after the bankruptcy
Bankruptcy is a federal law that provides the
person or business an orderly way to settle the debts and begin
anew. For the
creditors, bankruptcy enables them to receive all, part or none of
the debt owed.
A person or business declares bankruptcy by
filing a petition for relief in U.S. Bankruptcy Court.
An individual usually files for bankruptcy under either
Chapter 7 or Chapter 13. Chapter
7 bankruptcy, known as straight bankruptcy, calls for the
liquidation or sale of the debtor’s non-exempt possessions to
repay creditors. Chapter
13 bankruptcy is known as wage earner’s bankruptcy because it
calls for the debtor to repay the debt in installments over a
period of time from his or her excess or disposable income.
Chapter 11 bankruptcy, commonly known as
business reorganization, is often complex and expensive, involves
large debts, and occurs when the person or business wishes to
retain the assets, remain in business, and reorganize financially.
A creditor may ask the court to appoint a trustee if the
debtor has been found guilty of fraud, dishonesty, incompetence,
or gross mismanagement.
Chapter 12 of the bankruptcy law offers
special protection to farmers.
It prevents foreclosure on a farmer’s real estate debts
during economic slumps. The
farmer retains possession of the land and continues to operate the
farm. To settle the
debts, he usually devotes the profits from future crops.
Declaring bankruptcy does not erase all types
of debt. A debtor may
still liable for tax claims, alimony, child support, property
settlements, most student loans, and claims for punitive damages.
To understand why you are considering the
bankruptcy alternative ask yourself and write down the answer why
this is an alternative.
1.
Is there a threat of litigation?
2.
Are creditors’ telephone calls keeping you from
working or sleeping?
3.
Are you concerned that someone holding one of your
necessary assets as collateral is threatening foreclosure?
4.
Are there any taxes owing for which the telephone
calls will not stop or you are being frightened by the agent or
officer? Is any
government agency constantly levying your bank accounts or
receipts from customers?
5.
Is there a judgment or threat of judgment?
Use Caution and Good Judgment –
If you do not know why or cannot place the
reasons in writing for considering bankruptcy the intentions may
not be accomplished and may ruin your plans.
Risks of Bankruptcy
While bankruptcy may appear to be an easy way
to erase debts, it does come with consequences.
A person who has declared bankruptcy will
have that fact on his or her credit report for 10 years. Such
credit history can lead to other financial problems like the
inability to get a loan for a car, a house mortgage, or even a
credit card. (Try to rent a car without a credit card)
For those with income producing assets,
appreciating assets or those owning a business — you might
discover too late you risk all those assets in bankruptcy.
|
Caution For Small Business Owners |
| You might find out (too late) you place the
common stock in your corporation at risk, or there might
be a charging order against a partnership you are
in. If those assets have value to tempt the
creditors or bankruptcy trustee - plan for trouble. |
Not all debts or judgments are discharged in
bankruptcy! You may
find yourself in nearly the same circumstances after bankruptcy
— so you must answer the question “why are you declaring
bankruptcy?” to know if your intentions will be accomplished.
Bankruptcy May Have Alternatives
After making certain all the facts are known
and you understand why bankruptcy is being considered you will
better understand the appropriate strategy to accomplish your
intentions.
Be certain all your advisers understand your
personal intentions and place your objectives ahead of the
adviser’s fees. Make
certain you can write the intentions and reasons for bankruptcy
and furnish those intentions and objectives to
Bob Parrish
CPA and your legal counsel on the first interview.
List the needs in order of importance – the most
important on the top of the list.
Be certain to visit about alternatives to
Bankruptcy — even though Bankruptcy may accomplish your
intentions, is there another strategy?
If the intention is to discharge federal
taxes, then you must schedule a conference with
Bob Parrish
CPA before talking with
your attorney the first time as there may be alternatives you are
not aware of and
Bankruptcy may not relieve you of paying the taxes.
There are also more articles about this in the
Bob Parrish
CPA, P.C. website — see the Bankruptcy and Taxpayer Advocacy
(Internal Revenue Service Problems) sections.
Bob Parrish
CPA working with a bankruptcy attorney can advise a person on the
best way to settle debts, possibly without declaring bankruptcy.
Visit the
Bob Parrish
CPA PC ConsultingOnLine Web Site http://www.pro1040.com
Bob Parrish
CPA PC, for the firm
Bob Parrish
CPA
CC:
{Last
date letter read}
10/30/2002
Last Read
By: Bob
Parrish CPA Last Date Saved: 11/21/2001
9:13 AM Last Saved By:
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