Debt Watch: Can An Involuntary Bankruptcy Happen to You?

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When it comes to personal bankruptcies, what I usually see is that they are filed by the consumers themselves to ease their financial situation and get a better grip on their debts (in the case of a Chapter 13) or relief from debts (as is the case of a Chapter 7). But on rare occasions I know that creditors can push for an involuntary bankruptcy to be filed against an individual. More common, though, are involuntary bankruptcies filed against businesses.

What does involuntary bankruptcy mean? Simply, involuntary means that it is NOT done voluntarily. That means it is against your will and it doesn’t matter if you agree with it or not.

What types of bankruptcies can be made involuntary? Only Chapter 7 and Chapter 11 bankruptcies are eligible for an involuntary petition to be filed.

What can cause an involuntary bankruptcy? If you have debts that you’re not paying and ample assets that could be used to take care of them, creditors may push to get paid by forcing a bankruptcy.

What can you do to avoid an involuntary bankruptcy? If you can afford to pay your debts and the debts are legitimate and you truly owe them, you should pay them. That way there is never a risk.

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Can an involuntary bankruptcy be filed against me as an individual? Yes. Although it is rare, it can happen. They are extremely uncommon because most people who can afford to usually pay their debts willingly.

Who is most at risk for a personal involuntary bankruptcy? If you have lots of assets and are not paying your bills, you may be a candidate for one of these rare actions. If this is the case, you can’t really blame the creditors…

How is an involuntary bankruptcy filed? One or more creditors apply to the court by filing a petition asking that an involuntary bankruptcy be commenced against you.

Is an involuntary bankruptcy automatic? No! After the petition is filed by a creditor, you have 20 days to respond. If you don’t respond, it’s a done deal and you are forced into bankruptcy.

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What if I protest the involuntary bankruptcy? If the response is filed on time, a hearing is set. The judge reviews your debts and assets and if they decide you haven’t been servicing your debts and you could have been, they will allow it to proceed.

What if the judge finds in my favor on the involuntary bankruptcy? If the judge comes down on your side, the involuntary bankruptcy petition will be dismissed and there’s a chance the creditors that filed it will have to pay your court costs!

What are the limits on filing an involuntary bankruptcy? If you have more than 12 unsecured creditors at least three must agree to file the petition together. Also, you must owe the three (or more) that file more than $14,425.

Is there a situation where one creditor can file for an involuntary bankruptcy alone? Yes. If you have less than 12 unsecured creditors and you owe at least $14,425 to a single creditor, that creditor can file the petition alone.

With bankruptcy numbers down in North Carolina, it’s doubtful you’ll be subject to an involuntary bankruptcy. However – if you have debts you’re not meeting and you have the assets to take care of them you should. Otherwise your credit rating will take a hit and your financial outlook may be worsened by the addition of late fees and penalties that come with ditching debt.

If you’re like most people that aren’t paying their debts as they come due, it’s not a matter of choice – it’s just that your money is tight. That’s what I see more often. If this is the case, a Chapter 13 or Chapter 7 bankruptcy may get you the relief you need. Contact the law offices of John T Orcutt for a free consultation on your debt circumstances for valuable advice on how to regain your financial footing. We have several convenient locations to choose from and we’re ready to help you today!