Florida Asset Protection Blog

Involuntary Bankruptcy Increasing: Word On The Street

The word on the street is that involuntary bankruptcy petitions are on the rise- as expected. Florida residents have unlimited homestead protections outside of bankruptcy, but once they are in bankruptcy court the same debtor’s homestead protections are limited by the new bankruptcy law. Where several creditors have substantial claims against a debtor it is usually to the creditors’ advantage to have the debtor in bankruptcy.

As I was leaving the bankruptcy court building today I had a brief conversation on the street corner with one of the most experienced bankruptcy trustees in our local trustee panel. He said that in the afternoon he was involved in hearing on two separate involuntary bankruptcy petitions. In both cases, the debtor subject of the involuntary bankruptcy effort had set up an offshore trust in an attempt to shield assets from creditors. Offshore planning does not work as well in bankruptcy as it does in state court proceedings. The trustee said that he was aware of a significant increase in involuntary bankruptcy petitions in recent months. Involuntary bankruptcy was rare under the old bankruptcy law.

It may take time before involuntary bankruptcies under the new bankruptcy law work their way through the appeals process to become case law decisions. But, it appears at least to this one trustee that there is a trend toward creditors using the new bankruptcy law to attack creditors with involuntary bankruptcy. At least, that’s the word today on the street outside bankruptcy court.

Means Testing and Business Debts

The new bankruptcy law imposes a “means test” to determine if certain debtors are eligible to file Chapter 7 bankruptcy. Only debtors who, according to the means test formula, lack the ability to repay substantial portion of their debts may file Chapter 7.

Most people do not yet understand that the means test applies only to consumers. Consumers for bankruptcy purposes are people whose debts are primarily consumer related. People who incur most of their debts from business are not subject to the means test, and they may file for Chapter 7 without application of the means test formula. People who find themselves insolvent because they borrowed money on credit cards to support a business or an investment, or people who seek bankruptcy protection from personal liability on business related debt can file Chapter 7 under the new bankruptcy law regardless of means test standards.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Tax Effect of Bankruptcy Law

The new bankruptcy law includes provisions with income tax effects. Milt Baker, a Michigan CPA has a discussion on how the Bankruptcy Reform Act affects traditional tax planning vehicles such as retirement funds on his tax blog called CPA Sense. Link: cpasense.

New Bankruptcy Law: Chill

I have been receiving several email questions about the new bankruptcy law. One person complained because the new information was not yet incorporated on my website. This law is more complex than it seems. It raises many issues that will take years to resolve through court decisions. I am planning to attend a seminar on the bill soon, and will probably attend several more this year. There is no benefit to a fast analysis six months before the bill's effective date. Some people want to be the first to publish information about the bill as if being first to deliver the news is of some benefit. What is most important is to understand and process the law's changes in a thoughtful manner. People who rush to change asset protection plans may be making hasty mistakes. Keep in mind, as previously stated on this blog, the new bankruptcy law does not change Florida's homestead law or asset exemptions in state court proceedings. The changes are important only if a debtor files bankruptcy.