Article on Involuntary Bankruptcy Under New Law
I read an interesting article this week on involuntary bankruptcy in the American Bankruptcy Institute Journal. Daniel Morman, a Florida attorney, writes that the new bankruptcy law creditors will be able to use involuntary bankruptcy to strip homestead protection from people who move to Florida and buy expensive homes to protect themselves from creditors. One issue addressed in the article is whether a wealthy debtor forced into bankruptcy can save his homestead if his case is converted to Chapter 13 by virtue of "the means test." under the new law. In Chapter 13 the debtor would have to pay part of his debts over time. Mr. Morman states that the means test only applies to voluntary Chapter 7 petitions. Therefore, means testing will not stop creditors from using involuntary petitions to force a Chapter 7 liquidation of homestead properties.
I have written previously on this blog about involuntary petitions under the new bankruptcy law. There are many issues pertaining to involuntary bankruptcy which will have to clarified through judicial decisions. This article shows that bankruptcy attorneys are starting to pay attention to the importance of this issue.
Mr. Morman also raises an interesting question about the "means test" in a footnote: can debtors wanted to file Chapter 7, but who would otherwise fail the "means test", "enlist the help of friendly creditors to file an involuntary petition on his behalf to accomplish the trick." It would be unusual for institutional lenders to cooperate with a debtor in a typical consumer debt bankruptcy. This scenario is more likely for debtors dealing with business debt. However, a debtor whose debts are primarily business related are exempt from means testing anyway. This is, however, another interesting question raised by this article.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
