Bankruptcy Alphabet-I is for Involuntary Petition

Most bankruptcies are voluntary, meaning the debtor took the initiative and filed their bankruptcy petition on their own. Once in a blue moon bankruptcy cases are involuntary, meaning the debtor didn’t file the bankruptcy case, creditors did.

           I is for Involuntary Petition

Photo by Leo Reynolds

Why would a creditor file a bankruptcy on an unwilling debtor?
A creditor will file an involuntary petition when they believe that a debtor is hiding assets from execution, giving preference to other creditors, or simply dishing assets to insiders.

What chapters can be filed?
An involuntary petition can only be filed in Chapter 7 Liquidation cases or Chapter 11 Reorganization cases. An involuntary petition against family farmers under chapter 12 or wage earner chapter 13 cases are permitted.

For Chapter 11 Involuntary cases, a creditor needs to plan well to determine whether this would be a good remedy because by filing an involuntary Chapter 11 case, the creditor, rather than the debtor in possession, may be open to trustee fees.

Individual debtors in an Involuntary Chapter 7 case need to determine whether there is merit to dismiss the case or whether converting to chapter 12 or chapter 13 would better fulfill their interests.

How can an Involuntary Petition be filed?
A petition can be filed in the following manner:

  • If less than 12 creditors, a petition must be filed by one or more creditors who hold a combined claim of more than $10,000;
  • If more than 12 creditors, a petition must be filed by at least three creditors who hold claims of at least a combined $10,000 more than the value of any such lien on property of the debtor securing such claims held by the holders of such claims. 11 U.S.C. §303.

An Involuntary Petition is an important tool that is often times overlooked by creditors who could force individuals into bankruptcy in order to remedy a debt.

Other Bankruptcy Attorneys talking about the Letter I are as follows:
Income-New York Bankruptcy Attorney Jay S. Fleischman
IRS-Northern California Bankruptcy Lawyer, Cathy Moran

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