Bankruptcy Filing Options

Help with bankruptcy filing options, and the new rule and law changes

In limited circumstances, creditors may band together and file a petition naming one of their mutual debtors. In the past, this option was rarely used against small individual debtors. Most creditors realized that partial payments were preferable to no payment at all, and that most debtors in Chapter 7 rarely owned non-exempt assets. However, this traditional symbiosis may change.

After the enactment of the 2005 Act, almost all debtors who maintain regular employment will be forced into Chapter 13, in both voluntary and involuntary filings. In Chapter 13, under the new laws, debtors must contribute all disposable income to the plan for a period of 5 years. Some analysts believe that involuntary petitions will increase, because of this new creditor right to force debtors into court supervised plans supported by wage withholding orders. In effect, the new 2005 law may create an unobstructed end-run around state restrictions against wage garnishment (through federal preemption) to benefit creditors who hold previously uncollectible judgments. Oddly, these new laws were enacted to curb the steady rise in filings, yet in practice may enable a flood of involuntary petitions that actually increase total filings nationwide.

Planning a bankruptcy filing

Anyone who is a t risk of being forced into Chapter 13 through an involuntary petition would be well advised to seek legal advice and take preventative steps will opportunities exist. Pre-Chapter 13 planning is a delicate balance between avoiding prohibited transactions while using permissible options for maximum benefit. For instance, transferring assets with the intent to defraud creditors is strictly prohibited and may result in incarceration. Alternatively, paying priority debts (that cannot be discharged upon the completion of a Chapter 13 plan) is allowable, while general unsecured debts are ignored and may be discharge after completing the plan.