What Is An Involuntary Bankruptcy

Like all bankruptcy laws, the language surrounding the idea of an involuntary bankruptcy can be convoluted, and to many consumers, the fact that this concept even exists is a novel one. We hear an awful lot these days about individuals and groups filing bankruptcy, but very little about the idea of an ‘involuntary bankruptcy’, where a creditor or group of creditors files the bankruptcy claim directly against the debtor themselves. Let’s take a closer look into what the law actually says.

Who Can File A Petition: Designated in detail in section 303(b) of the Bankruptcy Code, involuntary bankruptcies can be brought against a debtor by creditors who are seeking to force a result to their outstanding claim. This can be done to push the debtor to address the claims of the creditors simultaneously, or as a preventative measure against the debtor liquidating their assets before filing for Chapter 7 or 11 bankruptcies themselves.

There is a requirement that the debtor also needs to have at least 12 qualifying creditors, and three of those must file the involuntary bankruptcy petitions. This can be difficult to prove, as some of that group could be disqualified as creditors or possibly even representative of the same entity.

Who The Petitions Can Be Filed Against: These involuntary bankruptcy petitions can be brought against a person eligible to be a debtor, in which case a person is defined as an individual as well as a partnership or corporation. Those not eligible to be a debtor (yet still persons!) include: railroads, farmers, banks, credit unions, domestic insurance companies, homestead association, savings and loan associations.

What can be done as the debtor? If you are in debt and have been hit with a petition for involuntary bankruptcy filed by several of your creditors, all hope is not lost. Carefully look at the ways in which the filing was done: if it has been made in what could be qualified as not in good faith, the claim could be flipped and result in the creditor paying the debtor both punitive damages and court fees. This is not a situation that creditors want to find themselves in, as it is a massive loss of both time and money.

There is a 20 day period following notification of the involuntary bankruptcy notice in which the debtor can file an objection, or the debtor can choose to voluntarily file for Chapter 7 or 11 bankruptcy otherwise. Going to trial is a risky move for both parties involved, depending on the weight of evidence and where it falls.

For situations of involuntary bankruptcy, it is always important to work with a qualified legal team to assess the chances of your case and the appropriate path for recourse. For more information about our experience and services here at The Law Office of Michael Alan Siddons, give our office a call at 610-225-7500. With offices in New Jersey, Pennsylvania, and Maryland, you can count on our team to be there where and when you need us the most.

FacebookTwitterGoogle+