Involuntary Bankruptcy

You might think that all bankruptcy should be considered involuntary, but in fact true involuntary bankruptcy occurs when an individual or organization is made bankrupt at the request of their creditors.

Usually the indebted person or company files for bankruptcy but in the case of involuntary bankruptcy the creditor initiates the bankruptcy proceedings by filing a petition to a bankruptcy court so that they can eventually collect the funds they are owed by their debtor.

In the case of Chapter 7 involuntary bankruptcy the debtor will be required to liquidate their assets in order to pay off their creditor. On the other hand, if the debtor has a regular source of income that can cover both his living expenses and monthly payments to his creditor the debtor may be allowed to file for Chapter 11 involuntary bankruptcy.

The Involuntary Bankruptcy Process:

  • Creditor files a petition and a summons with U.S. bankruptcy court clerk
  • Debtor has 20 days to file objections
  • If objections are filed the case goes to court
  • If there are no objections the bankruptcy proceeds

If an involuntary bankruptcy goes to court because the debtor has filed objections there is the possibility that the court will deny the creditors petition. However, if the court does find that a debtor should be declared bankrupt the debtor will have to confront all of the creditors to which he owes money.

Usually a creditor will try to force their debtor into involuntary bankruptcy if the debtor owes them a sizeable amount of money or if the debtor has missed a great number of the regular payments.

Forcing a debtor into involuntary bankruptcy allows a creditor to collect before the debtor drains all of his assets. Often before an individual or organization files for bankruptcy themselves they will do this.