In bankruptcy law, there are different types of chapters within bankruptcies, but there are only two ways these types of bankruptcies can be filed- voluntarily or involuntarily. Most bankruptcies filed are voluntary filings in the bankruptcy process.
Differences between Involuntary and Voluntary Filings
Voluntary filings in bankruptcy occur when a debtor or debtors voluntarily file through their own fruition. Any time a debtor or debtors have voluntary filings in bankruptcy, they are agreeing to surrender all of their assets to the bankruptcy estate for distribution by bankruptcy law.
Involuntary filings in bankruptcy occur when a debtor is forced to file through no voluntary act of their own. Normally, this act can occur when a creditor or creditors file a petition with a bankruptcy court asserting that a debtor or debtors owing them money is bankrupt. There are bankruptcy rules and procedures that must be followed before an involuntary bankruptcy can be completed successfully.
If a bankruptcy court approves the involuntary petition, the bankruptcy filed will be handled like any other bankruptcy filed of that type.
Why Voluntary Filings Occur More Often than Involuntary Filings
Involuntary filings are more often than not countered by individual debtors with voluntary filings of their own. This move allows the debtor to maintain more control over the bankruptcy proceedings.
The main advantage for voluntary filings is that the filer can convert the bankruptcy into a chapter 11, 12, or 13 if there is a business involved, they are a farmer or fisherman, or if they are an individual who wants to keep certain assets. The only type bankruptcy that creditors can force a debtor into is a chapter 7 bankruptcy in which the debtor’s assets will be liquidated to pay the debts.
Why Involuntary Filings are Not Filed Any More often than Filed
Involuntary bankruptcies are more often than not designed to force the debtor or debtors into filing a voluntary bankruptcy. The reason more involuntary filings are not filed is because there are certain limitations on the creditors who make these types of petitions to a bankruptcy court.
A creditor must meet one of the following conditions to file an involuntary filing:
a single creditor can file an involuntary case if the consumer has fewer than twelve unsecured creditors and the creditor has an unsecured claim of $15,325 or more; or
three or more creditors can file an involuntary case if the consumer has twelve or more unsecured (partially or wholly) creditors and the petitioning creditors have claims totaling at least $15,325.
A creditor cannot file an involuntary filing:
under any other chapter other than a chapter 7 bankruptcy;
against family farmers or fishermen; or
a joint bankruptcy against a married couple.
Three Responses to an Involuntary Bankruptcy Against You
You have three responses if someone does file an involuntary bankruptcy against you. You can:
make a voluntary filing of your own;
continue with the bankruptcy filed against you; or
contest the involuntary bankruptcy.
Whatever you decide, whether you answer an involuntary filing or decide to orchestrate a voluntary filing of your own, you will most likely need a bankruptcy attorney to help in your response.
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