Voluntary and Involuntary Bankruptcy Petitions

Most people dealing with financial pressure evaluate bankruptcy and voluntarily decide whether filing for bankruptcy makes sense for them. But creditors can also force debtors into Chapter 7 bankruptcy using an involuntary bankruptcy process. Learn more about these rare bankruptcy filings, including:

• which cases qualify for involuntary bankruptcy, and
• what to do if you're facing involuntary bankruptcy.

When a Creditor Forces You Into Bankruptcy Involuntarily

If this happens to you, you have options.

Contest the Involuntary Bankruptcy

You'll start by checking that the creditors filed the involuntary bankruptcy properly. Here are the requirements:

• An involuntary petition must be a Chapter 7 bankruptcy filed against an individual or corporation, not a married couple or a family farmer or fisherman.
• The petitioning creditors must have debt claims that meet the current threshold of approximately $15,000 to $20,000.
• Only one creditor is needed to start the process if the debtor has less than twelve unsecured creditors. Otherwise, three or more unsecured creditors must agree to file an involuntary action.

You'll likely want to object to the filing if it doesn't satisfy all of the requirements, but you'll probably need a bankruptcy lawyer to do this. A bankruptcy lawyer will also explain the likelihood of success and whether you have other reasons to contest the involuntary filing.

Continue With the Involuntary Chapter 7 Bankruptcy

Creditors often do worse in bankruptcy than if they pursued their debts outside of bankruptcy—which is why it's rare for creditors to file an involuntary bankruptcy. So if you're struggling to pay your bills, a Chapter 7 bankruptcy might not be a bad option.

The automatic stay will prevent creditors from collecting outside of the bankruptcy action. If you're an individual, you'll likely be able to protect at least some property using bankruptcy exemptions.

But Chapter 7 works differently for individuals and businesses, so if a company is involved, you'll want to explore the effects of Chapter 7 bankruptcy on small businesses. And keep in mind that small businesses other than sole proprietors aren't entitled to a Chapter 7 debt discharge. If you personally guaranteed business debts, your assets might be at risk.

Convert the Involuntary Chapter 7 Bankruptcy to Chapter 13 Bankruptcy

Chapter 13 works well for people who want to keep property they'd lose in Chapter 7 bankruptcy. If you're an individual or sole proprietor, you can convert to Chapter 13 if you think it would be a better choice.

But you'll need enough income to support a Chapter 13 repayment plan. And this chapter isn't available to businesses other than sole proprietors. If you are a sole proprietor, be sure to review the differences between Chapters 13 and 11.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.