Facing Involuntary Bankruptcy

When a person or business is overwhelmed by their financial responsibilities, then filing for bankruptcy becomes an option. However, creditors can file a bankruptcy case against someone who is not paying their debts. (Certain debtors are not subject to involuntary bankruptcy, such as farmers, charitable corporations, banks and insurance companies). Under the United States Bankruptcy Code, creditors may file an involuntary petition for a Chapter 7 or Chapter 11 bankruptcy. Normally, at least three creditors with unsecured debts amounting to at least $12,300.00 must file the petition, although in instances where a debtor has less than twelve unsecured creditors, a single creditor possessing an unsecured claim of $12,300.00 will suffice for filing purposes. (However, such amounts can be adjusted by the Consumer Price Index).

When facing a petition for involuntary bankruptcy, time is important. If the debtor does not file an answer to the petition within twenty days, then the bankruptcy court will rule in favor of the creditors. If the debtor answers in a timely manner, then the creditors must prove that they are entitled to relief.

Facing a Chapter 7 (Liquidation) Bankruptcy

In a Chapter 7 bankruptcy, a neutral third party, known as a bankruptcy trustee, may be appointed by the court to take possession of the debtor’s property (all of which comprise the debtor’s estate), for a possible liquidation sale. There are certain kinds of assets that are exempt from becoming part of the debtor’s estate, such as one’s home, car and personal effects. As expected, the creditors want as much payment as they can get, and thus, will probably object to any exemptions.

If the court grants the petition, then the property will be sold, with the proceeds of the sale going to the creditors. After the sale, the remaining debts will usually be discharged by the court.

The Challenges of a Re-Organization Bankruptcy

At the start of a Chapter 11 involuntary bankruptcy, the court may appoint a bankruptcy trustee to operate the troubled business. Afterward, both sides (or even the trustee or another party in interest) will attempt to come up with a reorganization plan that organizes and pays off the business’ debts over time. The Chapter 11 plan can address various sources of funding for the plan, such as equity capital from investors and even the sale of business assets.The Power of Legal Representation

Always Talk to a Bankruptcy Lawyer

In any bankruptcy action, creditors will seek an outcome that best serves their interests. When facing involuntary bankruptcy, a person should consider getting qualified legal counsel immediately. Having a lawyer increases the chance that a debtor can defeat insufficient petitions, retain exempt property, be subject to a fair bankruptcy plan, and overall, make sure that their client is treated with fairness and decency.