There are two different ways in which a bankruptcy proceeding can be initiated -- voluntary and involuntary. A voluntary bankruptcy, by far the most common type of bankruptcy proceeding, is initiated by a debtor who wishes to seek relief. Involuntary bankruptcies, which are very rare, are initiated by a debtor’s creditors who want to receive payment for what they are owed.
When people talk about bankruptcy, for the most part they are referring to voluntary bankruptcy. In a voluntary bankruptcy, you make the decision to file for bankruptcy and then file the petition and other papers with the court. Most consumers file either a Chapter 7 or Chapter 13 petition. But there are other options too -- Chapter 11 (business reorganization bankruptcy) and Chapter 12 (for family famers and fishermen).
To learn more about voluntary bankruptcy, see our Chapter 7 and Chapter 13 Bankruptcy area.
An involuntary bankruptcy begins when a creditor or group of creditors files a petition for bankruptcy against an individual or corporation which owes them money. There are several restrictions on creditors' ability to file an involuntary bankrutpcy against an individual consumer. Creditors cannot:
- file under Chapter 13, they can only file a Chapter 7
- file against family famers or fishermen, or
- file a joint bankruptcy against a married couple.
In addition, creditors must meet one of the following conditions in order to file an involuntary bankruptcy:
- A single creditor can file an involuntary case if the consumer has fewer than twelve unsecured creditors and the creditor has an unsecured claim of $15,325 or more.
- Three or more creditors can file an involuntary case if the consumer has twelve or more unsecured (partially or wholly) creditors and the petitioning creditors have claims totaling at least $15,325.
What to Do If a Creditor Files an Involuntary Bankruptcy Against You
While it is exceedingly rare for a creditor to file an involuntary bankruptcy against an individual, if it does happen, you have several options.
Continue with the bankruptcy. Bankruptcy might be the best option for you, since it offers many protections that you cannot get outside of 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.
Convert to a Chapter 13 bankruptcy. If you want to continue with the bankruptcy, but feel that Chapter 13 would be better for you, you can convert the case to Chapter 13 bankruptcy.
Contest the involuntary bankruptcy. If you don't want to go through bankruptcy, you can contest the involuntary filing. Most likely, you'll need a lawyer to do this.