Bankruptcy of Doctors and Dentists
Here we assume a Chapter 7 for a doctor. We include dentists in the term "doctor" because dentists are doctors of dental surgery.
If the doctor will be better served with a Chapter 11 or a Chapter 13, then the rules for those bankruptcies apply to professionals as they do to other debtors. Dentists, however, typically own large amounts of equipment that is often worth less than the amount owed on it. In this case, a dentist may benefit significantly from a Chapter 11.
Reorganization under a Chapter 7 is often the most advantageous for both the medical doctor and the dentist. The reason for this is that the real value of a professional's business is the professional himself. This is advantageous because the person of the professional cannot be lost to the bankruptcy estate, nor can it be encumbered or in any way impaired.
A doctor can file a personal Chapter 7 on Friday and be back to work with the bankruptcy effectively behind him on the next Monday. Certainly, the physical process of the bankruptcy proceeding remains to be completed, but if properly prepared, that process for the doctor should consist of one meeting that the doctor must attend about 5 weeks later.
Because a doctor's collectable receivables are normally small in comparison to his income and because they are normally much more current than other businesses, the doctor's receivables may not pose as much of a problem as they would in other professions. This is especially true if the doctor is working through a professional corporation.
One thing that doctors, lawyers and CPAs have in common is their exposure to clients and patients. One of the most distasteful (but most effective) things that the professional debtor can do is to take a very hard look at his practice and determine which of his clients or patients should be notified of his bankruptcy. This notice generally ensures that the client or patient never sues.
If the doctor or the doctor's entity owns a significant amount of depreciable equipment, the doctor may be exposed to a tax effect and should plan his bankrupty around its circumvention.