The U.S. bankruptcy system allows for something called involuntary bankruptcy. This happens when one or more creditors file for a debtor's bankruptcy rather than the actual debtor. This means that a person who has defaulted on his or her debt can actually be forced to enter into the bankruptcy process. This tactic is usually only used by creditors when they believe that the debtor actually has an ability to pay but simply is not doing so. For this reason, involuntary bankruptcy is typically reserved for businesses and wealthier individuals. Involuntary bankruptcy filings can only initiate Chapter 7 or Chapter 11 bankruptcies, according to the U.S. Bankruptcy Code (11 USC §303).

Our law firm, Alan J. Fisher, PA, provides legal support for individuals and small businesses that have been targeted with involuntary bankruptcy. We know that being forced into such a major financial move can be earth-shattering, which is why we are here to help! With the assistance of our Boca Raton bankruptcy lawyer, you might be able to get your bankruptcy case dismissed and your legal costs and/or damages paid for by the creditors that entered the filing. If you do end up having to go through with a bankruptcy, we can assist you in navigating the process.

How does involuntary bankruptcy work?

After creditors file a petition for involuntary bankruptcy for a debtor, the debtor is given a certain amount of time to file a response. A failure to respond will result in the bankruptcy case being allowed to proceed. If the debtor does respond, a hearing is scheduled and both sides get the chance to present evidence as to why the involuntary bankruptcy should or should not be allowed. If the judge decides to approve the case, the debtor must go through with the bankruptcy.

If the judge decides that the debtor has a legitimate defense, the court will end the bankruptcy case and the creditor(s) will likely be ordered to pay the debtor's court costs and attorney fees. If it is found that the petition was filed in bad faith, the creditor(s) will also be ordered to pay damages caused by the involuntary bankruptcy filing (such as loss of business) and possibly even punitive damages.

Certain criteria must be met before one or more creditors can file for involuntary bankruptcy. First of all, If the debtor has 12 or more creditors, three or more of the creditors must ban together to submit the petition, and they must have claims that cumulatively value at least $10,000 of unsecured debt (or at least $10,000 more than the amount of any related property liens, if the creditors do not waive their security).

If there are less than 12 creditors, then one creditor must meet the $10,000 threshold. Furthermore, the involuntary bankruptcy will not be able to move forward if the court discovers that there is a legitimate bona fide dispute between the debtor and the creditor, such as a dispute over the amount owed or over the debtor's actual liability.

Consult with a knowledgeable Boca Raton bankruptcy lawyer!

Attorney Alan J. Fisher has 25 years of experience practicing bankruptcy law exclusively. This makes him closely familiar with the United States' bankruptcy laws. The lawyer's extensive experience has also given him a wealth of courtroom experience.

Contact our firm so we can help you strategize your defense for involuntary bankruptcy!