Involuntary Bankruptcy

Voluntary cases in bankruptcy occur when consumers in debt choose to file for bankruptcy. Involuntary cases occur when debtors are forced by a creditor through court order, to file for bankruptcy in order to allow for the creditor to recover something.  Involuntary cases exist in only Chapter 7 and Chapter 11 bankruptcy cases. There are some who are exempt from involuntary bankruptcies including include farmers, family farmers, or a corporation that is not a commercial, moneyed or business corporation.

An involuntary case cannot be commenced against a husband and wife, jointly. Only a “person” can be the subject of an involuntary case, married couples do not constitute a “person.” In an involuntary case, joint cases are unavailable. It doesn’t matter if both spouses are even indebted to the same creditor or creditors. If an involuntary case is brought against a married couple, jointly, the case can be dismissed in its entirety, or one spouse within the marriage may be dismissed from the case. If the couple so wishes to file a joint bankruptcy, then the couple can convert the involuntary petition to a voluntary case if it is so done under an appropriate chapter.

Creditors seeking to commence an involuntary case must each hold a claim against the debtor. These creditors must make clear that there are debts owed to them by the person they are hoping to petition an involuntary case against. The creditors must make claim against the alleged debtor. A “claim” is defined as a right to payment. At least three creditors against the same alleged debtor are required to make claims in order for an involuntary petition to be filed against that debtor. Each of those creditors must hold a separate claim against the alleged debtor. An involuntary petition filed by less than three creditors is subject to dismissal. The use of the minimum amount of needed creditors to file an involuntary petition is set up to protect consumers from being harassed by single entitites.