Voluntary Versus Involuntary Chapter 11 Bankruptcy Petitions
When a business or an individual files for Chapter 11 bankruptcy, the case is usually what is known as a voluntary bankruptcy. However, in some situations, a business or an individual can be subject to an involuntary bankruptcy (and in most cases, involuntary bankruptcies impact businesses rather than individuals). What are the differences between voluntary and involuntary bankruptcy, and what should you know about them? Our South Florida bankruptcy attorneys can provide you with more information.
Most Chapter 11 Bankruptcies Are Voluntary
In most cases, Chapter 11 bankruptcies are voluntary. What that means is that the party filing for Chapter 11 bankruptcy (whether it is a business or an individual) has made the decision to file for bankruptcy. With a voluntary petition, the debtor will work with an attorney to complete all relevant forms and to provide the bankruptcy court with all relevant financial and identifying documentation, as well as the plan or intention to file a plan (the reorganization plan that is part of the Chapter 11 case).
In both voluntary and involuntary Chapter 11 bankruptcy cases, the debtor will typically become a “debtor in possession,” and will remain in that role according to US bankruptcy law “until the debtor’s plan of reorganization is confirmed, the debtor’s case is dismissed or converted to Chapter 7, or a Chapter 11 trustee is appointed.” In most cases, the debtor will remain the debtor in possession — it is uncommon for a Chapter 11 trustee to be appointed instead.
Involuntary Chapter 11 Bankruptcies Typically Impact Businesses
A debtor should anticipate that an involuntary bankruptcy — one that the debtor has not filed for, but rather that creditors take steps to initiate — might occur in cases where the debtor owes money to creditors, has funds to make payments, and has not done so.
With an involuntary bankruptcy, the creditor(s) will file the bankruptcy petition and provide details of the debts owed by the debtor. The bankruptcy case will go through a process similar to a voluntary Chapter 11 case if it moves forward. Involuntary cases can only be filed under Chapter 11 and Chapter 7 — involuntary cases cannot be filed against businesses under Chapter 12, for example, or against a sole proprietorship under Chapter 13.
According to the US Department of Justice, involuntary bankruptcies make up only a very small percentage of filed bankruptcy petitions and remain relatively rare. As such, your business should not necessarily be focused on the possibility of an involuntary bankruptcy filing against it. However, if your business is struggling with debt, a voluntary Chapter 11 case may be a way to catch up with creditors while continuing to run your business and serve your customers.
Contact a West Palm Beach Bankruptcy Attorney for Assistance
Whether you have questions or concerns about voluntary and involuntary bankruptcy proceedings, or if your business needs assistance with a Chapter 11 filing, our firm is here to assist you. One of the experienced West Palm Beach bankruptcy lawyers at Kelley, Fulton, Kaplan & Eller can speak with you today to answer any questions you have and to begin working with you on plans for your Chapter 11 bankruptcy case. Contact us today to learn more about how our firm can assist your business.
Sources:
law.cornell.edu/uscode/text/11
uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics
