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.
Involuntary bankruptcy petitions are on the rise- as expectedand. Creditors begin an involuntary bankruptcy case by filing a petition and a summons with the clerk of the U.S. Bankruptcy Court. The debtor has 20 days to file objections. If that happens, the case can go to trial. If not, the bankruptcy proceeds.
But an involuntary case can be initiated only under Chapter 7 or Chapter 11 of the Bankruptcy Code.
Under Chapter 11, the debtor can stay in business with a plan of reorganization. Creditors get paid from the cash flow of the business. A Chapter 7 case, however, involves closing shop and liquidating the debtor's assets. In both cases, only creditors with claims allowed by the bankruptcy court get money from the debtor's estate.
Florida Treatment Centers