I recently received an email from a CPA friend of mine who was advising a husband and wife couple who were contemplating both divorce and bankruptcy. He was surprised to learn from me that the bankruptcy court usually gives wide deference to settlement agreements that are made part of divorce agreements.
For example property transfer that would be considered fraudulent outside of a divorce would most likely not be challenged if it was part of a divorce settlement. I asked my friend if he would write a guest post for my blog discussing Chapter 7 from the perspective of a CPA, as opposed to a bankruptcy lawyer. Here it is:
Especially in today’s economy, it is not uncommon for couples to have money challenges at some point in their relationship. Whether a catastrophic loss of income, a major health challenge, or just plain old fashioned poor money management skills are to blame, sometimes filing for bankruptcy is necessary. In order to feel more in charge of the situation and to have the process go as smoothly as possible here are some tips to keep in mind as you plan your strategy for an imminent Chapter 7 filing, especially if a looming divorce is compounding the urgency of the situation.
1. Seek Expert Advice
In the past few years over 1 million Americans have filed for bankruptcy annually as a way out of overwhelming debt. In order to have the best possible outcome, it is important to seek expert advice in order to minimize the impact of the bankruptcy experience. Although a bankruptcy attorney will help you with the legal matters, seeing a CPA together first may also be helpful. Doing a little research beforehand can help you find out how to hire the best CPA for your situation. Local job and family services branches, as well as your local Better Business Bureau can help you find an experienced CPA who has passed the uniform CPA Exam and is fully qualified to meet your specific needs.
2. Unique Situations for Married Couples
Though bankruptcy guidelines will vary somewhat from state to state, it is important to understand the full scope of options available to you. Various professionals will have parts of the total knowledge you will need to accumulate in order to have the best outcome possible. Your personal banker, financial planner, CPA, and bankruptcy attorney will all have a slightly different viewpoint. Take the time to get your plan in place before proceeding. In every state, there are aspects of marital assets that can be divided up, re-titled, or otherwise transferred so that the bankruptcy will least affect them. Assets like vehicles used to go to work, a second home, certain joint investments and other landholdings are among the items you will want a financial professional to counsel you about before you file for bankruptcy.
3. Take Your Time
Being in such a stressful situation might make you feel like you want it all behind you in a hurry. If you take the time to meet with several related professionals first, then you may arrive at a strategy and process together that might have lasting benefits for both of you. Since bankruptcy will affect your financial future for a long time, you will want to be sure that you go into the process with the best information possible. Especially if there are children involved, your assets and the decisions you make regarding them affect more than just yourself. In the hurry to seek resolution especially in a situation of stress and perceived powerlessness, you need to slow down and realize that over a million people this year in the United States alone are going through the same process as you. You want to come out of the process as best as you can, so consult with all resources available to you and proceed with knowledge, logic, and a level-head.
Conclusion
While the decision to file for bankruptcy can be distressing, it can be part of an overall strategy to alleviate debt and make a new financial beginning. While there is certain debt like student loans that are almost always retained even in bankruptcy, there is a wide array of other debt and assets that need the careful attention of professionals that can help you achieve the most positive outcome. While a looming divorce may compound the pressure and the feeling that you just want the whole thing behind you, taking time to strategize how you can re-title, re-distribute, and re-categorize your assets can pay off in the long run, especially when there are children to consider. While filing for Chapter 7 is challenging on a personal and financial level, in a lot of circumstances it is what makes the most sense for long-term considerations. At the same time, it is a process that goes more smoothly when you take the time to educate yourself and to seek the advice of a wide range of professionals whose goals are to help you achieve the best possible outcome in a difficult set of circumstances. For more related information see: