What is Involuntary Bankruptcy?

Consumers who are struggling with debt but do not want to file for bankruptcy may, in certain situations, end up facing an involuntary bankruptcy petition. While involuntary bankruptcy is much more common when businesses owe debts to creditors, there are situations in which creditors can file an involuntary bankruptcy petition against an individual debtor. In most situations, individual consumers do not need to be worried about facing an involuntary bankruptcy case. However, it is important to understand the kinds of scenarios in which the U.S. Bankruptcy Code allows a creditor (or a group of creditors) to file an involuntary bankruptcy petition against an individual debtor.

Learning More About Involuntary Bankruptcy
Before we discuss some of the situations in which creditors can and cannot file an involuntary bankruptcy petition against an individual debtor, we want to tell you more about involuntary bankruptcy. In general, there are voluntary and involuntary bankruptcy proceedings. When most people think about consumer bankruptcy, they are thinking about a voluntary bankruptcy in which the debtor makes the decision to file for personal bankruptcy and works with an attorney to file either for Chapter 7 or Chapter 13 bankruptcy. These types of bankruptcy are voluntary in that the debtor makes the decision to file.

In some cases, a creditor or group of creditors may be able to file a bankruptcy petition against a debtor even when that debtor does not want to file for bankruptcy.

Why Would a Creditor File an Involuntary Bankruptcy Petition?
When it comes to individual consumers and businesses facing involuntary bankruptcy petitions, these usually occur when a debtor is not making payments but does have some assets, income, or other options for making payments. Each case is different, and it is important to speak with a lawyer about your options if you are facing an involuntary bankruptcy petition.

Restrictions on Involuntary Bankruptcy
Under the U.S. Bankruptcy Code, involuntary bankruptcy is only allowed for Chapter 7 or Chapter 11 bankruptcies. Accordingly, a creditor cannot file an involuntary Chapter 13 bankruptcy petition against an individual debtor. Further, bankruptcy law does not allow creditors to file an involuntary bankruptcy petition against a family farmer or fisherman (as those terms are defined by the law), and creditors cannot file a joint Chapter 7 bankruptcy petition against a married couple. While a married couple can file a voluntary joint bankruptcy petition, they cannot face a joint involuntary bankruptcy petition.

Requirements for an Involuntary Bankruptcy
For a creditor to file an involuntary bankruptcy petition against an individual, a single creditor, or three or more creditors collectively, must have claims totaling $16,750 or more. You should keep in mind that it is very unlikely to face an involuntary bankruptcy petition, and these are particularly rare for consumers. Involuntary bankruptcies are uncommon generally, but typically involve business debtors.

Seek Advice From an Oak Park Bankruptcy Lawyer
If you have questions about an involuntary bankruptcy petition or you need assistance with your bankruptcy case, one of the experienced Oak Park bankruptcy attorneys at our firm can speak with you today about your situation. Contact the Emerson Law Firm to learn more.


See Related Blog Posts:

Consumer Bankruptcy FAQs

Pros and Cons of Chapter 13 Bankruptcy

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