No Privacy in Bankruptcy: Data in the Public Record Are There for Anyone to See
EXECUTIVE SUMMARY * LAWS AND REGULATIONS PROHIBIT CPAs from disclosing clients' personal financial information, but bankruptcy statutes require that very same information to go into the public record. CPAs can't change the law, but they can help clients get through the bankruptcy process. * PUBLIC ACCESS AIDS THE ADMINISTRATION of bankruptcy cases, promotes public trust and accountability in the system and encourages legal compliance. Unfortunately, it also increases the likelihood of the debtor becoming a target of scams. * CPAs CAN HELP CLIENTS COPE with bankruptcy in a number of ways. They can inform them about the extent to which their personal and financial information will become public--and let them know that they must meet all the disclosure requirements of the bankruptcy statutes. * BANKRUPTCY ISN'T THE ONLY OPTION. Alternatives such as a nonstatutory contract to which both debtor and creditors consent give creditors a prorated share of their claims and discharge the debtor's balance. Other alternatives are an agreement to pay down debt over a longer time and credit counseling to negotiate debt-reduction terms. * MANY CLIENTS BOUNCE BACK. Being available, expressing a willingness to maintain a working relationship, answering questions, preparing financial documents and easing the aftershock are important functions for CPAs to perform. CPAs who help clients handle the bankruptcy process are trusted advisers in more than name. ********** CPAs who help clients make the details of their financial lives known to the court during a bankruptcy may understandably get headaches. The Gramm-Leach-Bliley Act and related Federal Trade Commission regulations generally prohibit practitioners from disclosing clients' personal financial information. But bankruptcy statutes take precedence over those restrictions--and require that very same information to go into the public record. Can the conflict of individual right to privacy vs. statutory right to public access be resolved? Even with passage of the Bankruptcy Reform Act questions remain. CPAs who assist in a bankruptcy can present the issues and guide clients through the process professionally and compassionately. WHAT BANKRUPTCY DOES Bankruptcy is a judicial process to provide an individual or a business that no longer can pay its debts with relief from financial obligations. It distributes a debtor's property equitably among creditors and enables the debtor to start afresh. The most common bankruptcies are Chapter 7 liquidations, Chapter 11 reorganizations and Chapter 13 adjustments (sec "Bankruptcy Reform Is Here" page 51). In the bankruptcy process, debtors are required to submit a tremendous amount of information to the court. CPAs participate by providing a number of services, which can range from preparing financial documents on behalf of the debtor to helping the court-appointed trustee gather a debtor's financial records (see "The Business of Bankruptcy," JofA, Feb.02, page 35). The detailed information lists creditors, assets, liabilities and income, and any additional information explaining the debtor's financial situation. All of this is a necessary precursor to distributing assets equitably among the creditors (see "In the Public Record," page 62). Generally the public has the right to inspect documents filed with the bankruptcy court. Both statutory and constitutional laws protect this access to court records, and section 107(a) of the bankruptcy code affirms the right of public access. In most cases the news media may obtain court records under the First Amendment as well. Public access aids the administration of bankruptcy cases, promotes public trust and accountability in the system and encourages legal compliance. If making the data available to the public serves as de facto oversight by shining a spotlight on the process and inviting scrutiny, it also increases the likelihood of the debtor becoming a target of questionable schemes and scams. …