Bankruptcy Basics for Forensic Accountants

Bankruptcy is important for forensic accountants and auditors to understand. It’s also a niche that can differentiate an accountant as a specialist.


Bankruptcy is a complex process many accountants come across in their work and a niche expertise that can help differentiate accountants in their market. That’s why we’ve created the Forensic Accounting Basics: Bankruptcy Basics course. In this course, we go over the six types of bankruptcies, the five roles involved in a bankruptcy case, types of bankruptcy frauds, and that’s just the beginning.

Who should take this course?
·       CPAs ·       Internal Auditors
·       CFEs ·       External Auditors
·       CFFs ·       Private Investigators
·       MAFFs ·       Business Owners
·       CIAs  
·       CMAs  

It is often necessary for accountants to assist their employer or client with bankruptcy issues. This course is designed to provide you with a basic knowledge of the bankruptcy process. But, what is bankruptcy?

Bankruptcy occurs when a person legally declares their self or their business unable to pay outstanding debts. Typically, a judge determines a payment schedule or will discharge most if not all of their debts. In the case of a business filing bankruptcy, the business may close or continue to operate, but have their debt payments reduced.

Bankruptcy Basics

Six Types of Bankruptcy

There are six types of bankruptcy one can file, depending on their individual circumstances.

  1. Chapter 7 is a liquidation of the assets of individuals or businesses where the proceeds are distributed to the creditors.
  2. Chapter 9 is an adjustment of debts for a municipality by way of reorganization. Municipalities cannot liquidate under Chapter 7.
  3. Chapter 11 is a reorganization for businesses and individuals with high debts. A plan is filed within 120 days. The court eventually has to approve any plan.
  4. Chapter 12 is an adjustment of debts for family farmers and fisherman designed to allow them to keep the farm or boat.
  5. Chapter 13 is an adjustment of debts for individual debtors which allows the debtor to keep some assets and make adjusted payments for 3 to 5 years.
  6. Chapter 15 works for those with international debts.

Forensic Accountants Roles

There are many roles involved in a bankruptcy case. It must be said that any accountants working on bankruptcy cases need to be careful not to provide legal advice to their clients. In most states practicing law without a license is a criminal offence. When clients request legal advice they should be referred to an attorney. That being said, here are some roles involved in the bankruptcy process:

Bankruptcy Basics for Forensic Accountants

  1. Individual debtors must meet with a credit counselor in the six months prior to applying for bankruptcy.
  2. Preparing bankruptcy forms and schedules. Forensic accountants can also be hired by the court to review and verify the information submitted by a debtor.
  3. The bankruptcy trustee is responsible for collecting all of debtor’s monthly payments and making distributions to the creditors.
  4. Chief Restructuring Officer (CRO) . The CRO reports to the Board of Directors or company management and has broad authority to negotiate with the company’s creditors in the case of a Chapter 11 reorganization
  5. Restructuring consultants. Some companies hire consultants to advise management but, unlike a CRO, they usually do not have the authority to directly negotiate on behalf of the company.
  6. Bankruptcy Examiner s are hired by the court or by creditors when they suspect that a debtor is committing fraud.

Once you’ve gained a good understanding of the types of bankruptcy and forensic accountants’ roles in the bankruptcy process, we begin to dive deeper into the possible processes for different types of bankruptcy including:

Types of Bankruptcy Frauds

Bankruptcy and Taxes

Insolvency, and


This has been an overview of bankruptcy basics for forensic accountants. To go more in-depth with our resident expert Bob K Minniti’s additional insights, check out the Forensic Accounting Basics: Bankruptcy Basics course on Accounting Ed!

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