What is involuntary bankruptcy?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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Involuntary bankruptcy occurs when a person or business owes money to creditors, and those creditors request that the debtor file bankruptcy. The creditors requesting involuntary bankruptcy feel this is the only way they will collect on what they are owed. The creditors make the request by filing a petition in court, and if the petition is approved, the bankruptcy becomes a legal requirement for the debtor.

Objecting to an Involuntary Bankruptcy 

If creditors are trying to force an involuntary bankruptcy, the debtor has the right to file objections to the bankruptcy petition if he or she does so within 20 days of notice. In that situation, there will be a court hearing at which both the debtor and the creditors can state their cases. Should the debtor win the case, he or she is eligible to collect lawyer’s fees and all other costs associated with the hearing and the defense process.

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Involuntary Bankruptcy Requirements

Creditors cannot simply force any debtor into involuntary bankruptcy. There are minimum amounts of debt – and minimum numbers of creditors – that must be met in order for an involuntary bankruptcy petition to be filed. These numbers vary depending on whether the debtor in question is an individual or a company.

Which Chapter Is Filed for Involuntary Bankruptcy?

Involuntary bankruptcy cannot be filed as a Chapter 13, so if the debtor in question is a business, then there is no option for filing against them except for a Chapter 7 liquidation. This means that a debtor who is forced into involuntary bankruptcy will have his or her assets liquidated as a part of the bankruptcy, provided the petition to force the bankruptcy is granted. The money generated from the liquidation of assets will be distributed among the creditors based on formulas set by bankruptcy law that establish priority of creditors. Any balance that remains on debts will then be forgiven. 

Getting Legal Help

If you have received notice that your creditors are trying to force you into involuntary bankruptcy, you need to call a bankruptcy lawyer immediately. An involuntary Chapter 7 bankruptcy may not be in your best interests, and you need to get help from a lawyer to determine how best to proceed. 

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