What is an Involuntary Bankruptcy?
While most often the bankruptcy process is enacted to help an individual struggling with debt, it can also be used to the benefit of the creditor to whom which the debt is owed. This is process is known as an involuntary bankruptcy. Generally speaking, an involuntary bankruptcy begins with one or more creditor filing a bankruptcy action on behalf of the individual or business that owes them money.
Who is most impacted by Involuntary Bankruptcies?
As a reassurance to the general population, involuntary bankruptcies are rarely imposed on the average individual. From a creditor’s perspective, it only makes sense to impose an involuntary bankruptcy on someone that has the volume of assets available to be able to repay most or all of the outstanding debt. For the average individual experiencing financial hardship, more often than not, their assets do not exceed their debt, nor do they usually come close. For this reason, creditors generally target large companies or wealthy individuals who they know have valuable assets that can be liquidated.
How does the Involuntary Bankruptcy process work?
To begin the involuntary bankruptcy process, the creditor and debtor situation must the meet the qualifying criteria:
- The debtor must owe a minimum of $15,775 in total across all unsecured debts
- If the debtor owes at least $15,775 to one creditor alone, then that creditor may begin the involuntary bankruptcy process
- If the debtor has outstanding debt to more than 12 creditors, at least 3 creditors (with a combined outstanding debt of at least $15,775) must participate in order to file the petition for involuntary bankruptcy
Once eligible, the creditor(s) must follow a specific procedure that includes filing a petition to the bankruptcy court. Once filed, the debtor will be notified and expected to respond to the petition. If the debtor fails to respond, the bankruptcy will move forward without objection, ordering that the debtor take part in the involuntary bankruptcy. If the debtor does respond, the case will be taken to court for a judgment on whether or not to proceed with the bankruptcy.
If you are considering bankruptcy, or worried that you may need to, it’s never too early to consult with an experienced bankruptcy attorney. Our team will sit down with you to discuss your options and help you to make a decision that works best for you. To schedule a meeting, contact our office at (702) 998-1188, info@ljlawlv.com, or by scheduling a consultation online.
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