Involuntary bankruptcy occurs when a person's (or business's) creditors petition the bankruptcy court to require the person or business to file for bankruptcy. If the court approves the request, the person is then legally required to file a bankruptcy case.
If you have been notified that your creditors have petitioned for you to file for bankruptcy, you may want to speak with a lawyer.
Involuntary bankruptcy is generally in the best interest of the creditors but is not always in the individual's best interest. To speak with a lawyer today for a free no-obligation consultation, simply fill out the case review form below.
How Does Involuntary Bankruptcy Work?
Luckily, it is not possible for creditors to force a debtor into involuntary bankruptcy unless the debtor’s situation meets certain criteria, and most people struggling with debt don't have to worry about being forced into bankruptcy. Here's how involuntary bankruptcy generally works:
- Creditors petition the court for involuntary bankruptcy. In most cases, creditors do this because they believe they have little or no chance of being paid what they're owed unless the debtor is in bankruptcy. In order to petition the court, creditors must prove that the debtor has a certain minimum amount of debt.
- The debtor may object. If a debtor's lawyer advises that filing bankruptcy is not in the debtor's best interest, the debtor may object to the petition for involuntary bankruptcy. However, bankruptcy law requires objections to be filed within 20 days of the creditors' petition for involuntary bankruptcy.
- A judge hears the case. At this point, the creditors and the debtor have a chance to present their arguments for or against bankruptcy. If the judge decides that the debtor does not have to file for bankruptcy, creditors must pay the debtor's legal fees. If the judge finds in favor of bankruptcy, the case begins.
- The court liquidates the debtor's non-exempt assets. Involuntary bankruptcy cases follow Chapter 7 of the U.S. Bankruptcy Code, which means that some of the filer's assets are sold to raise money to repay creditors. Creditors likely won't force an involuntary filing unless the debtor has significant non-exempt assets.
It is crucial to understand that involuntary bankruptcy cases will go forward unless the debtor files an objection. For this reason, it's generally a good idea to contact a lawyer as soon as possible after receiving notice of an involuntary bankruptcy filing.