Bankruptcies create a public record in the U.S. Bankruptcy Court, and interested CPAs can consult it to review the fee structure in their market. The court approves all fees—which vary according to services provided and geographic location and which must meet stringent criteria for being reasonable. However, payment is slow (every 120 days), and the court requires that bills explain services in extraordinary detail. It scrutinizes invoices carefully and may require that tasks be itemized in time increments of as little as one-tenth of an hour. In bankruptcy work, be aware that you’ll need to do some of the best record keeping and most well-documented billing of your career.
The CPA must obtain court approval as a “bankruptcy professional” for each case (requirements vary between districts) as well as for specific, billable tasks. When a client is in dire financial straits and may have to file for bankruptcy, there are certain important steps that CPAs must take, say bankruptcy specialists.
The toughest job for the CPA is to first convince the client it’s time to file for bankruptcy protection, says David Ringer, CPA, partner with New York firm Richard A. Eisner & Co. “There is no set method for getting someone to swallow the advice,” he says.
Second, the practitioner has to determine whether the client’s cash position can weather a Chapter 11 process. Chapter 11 means reorganization and reemergence as a going concern, and it comes with expenses such as court costs as well as fees for legal and accounting services. If the client is not in a position to pay all the expenses, a Chapter 7 filing may be required.
Third, the CPA needs to advise the client to hire bankruptcy counsel and provide a referral. (This is the time the CPA can put in a word that his or her firm is available to handle some of the accounting work.)
The nature of bankruptcy, resulting as it does from a client’s inability to pay debts, might give the false impression that a CPA firm working for the debtor is at risk of not getting paid for bankruptcy-related services. However, most of the time exactly the opposite is the case.