The term involuntary bankruptcy refers to the process where an individual is forced into bankruptcy by a creditor. If there are less than twelve creditors owed money by an individual debtor, then it only requires the action of one creditor to force an involuntary bankruptcy. If there are more than 12 creditors, then three must agree to force an involuntary bankruptcy. There are, however, some restrictions that apply.
In general, anyone can be forced into bankruptcy. There are some businesses, mainly in the banking sector, that cannot be forced into bankruptcy. Apart from that small group of exempt businesses, every other business can also be forced into bankruptcy.
The requirements are fairly simple. They include:
- The creditor must be owed more than $10,000,
- The debt owed must be unsecured,
- The involuntary bankruptcy must be made in good faith, and
- The creditor can prove that the debtor has made no attempt to bring their account up to date.
As a debtor, you can object to being forced into involuntary bankruptcy. However, if your account has been delinquent for some time and you have refused to make payments or discuss alternative arrangements with a creditor, then your objection will be dismissed fairly quickly.
If a creditor (or group of creditors) are forcing you into an involuntary bankruptcy, then you should seek the services of an experienced bankruptcy attorney. This is particularly important if you are running a business and you want to be able to save your business from forced closure.
Involuntary bankruptcies can be a messy business, and in most cases, creditors don’t take this route unless they are sure they can reclaim the costs involved. If you have a lot of valuable assets, then creditors may view you as an involuntary bankruptcy risk and in that case they will pursue you until the debts have been satisfied.
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