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West Palm Beach Bankruptcy & Business Attorneys > > Bankruptcy Attorneys > What Is An Involuntary Bankruptcy Under Chapter 11 Or Chapter 7?

What Is An Involuntary Bankruptcy Under Chapter 11 Or Chapter 7?


When most individuals or businesses are considering the possibility of filing for bankruptcy, most of those debtors are thinking about voluntary bankruptcies, or bankruptcy filings in which they make the decision to file for bankruptcy. When a debtor makes the decision to file a bankruptcy petition, that type of bankruptcy filing is known as a voluntary bankruptcy. Yet there are certain situations under U.S. bankruptcy law in which an individual or a corporation can face an involuntary bankruptcy petition. Involuntary bankruptcies are not common, yet it is important to understand how the law handles involuntary bankruptcies, and the kinds of circumstances under which an involuntary bankruptcy petition could be filed. If you have additional questions or need assistance with your case, you should get in touch with a West Palm Beach bankruptcy attorney who can help.

Who Can Face Involuntary Bankruptcy

 An individual or a corporation can face an involuntary bankruptcy case, although involuntary bankruptcies typically involve business debtors. Involuntary bankruptcies can only involve Chapter 7 bankruptcy cases or Chapter 11 cases. Here is what the U.S. Bankruptcy Code says:

“An involuntary case may be commenced only under chapter 7 or 11 of this title, and only against a person, except a farmer, family farmer, or a corporation that is not a moneyed, business, or commercial corporation, that may be a debtor under the chapter under which such case is commenced.”

There are then specific requirements for an involuntary bankruptcy petition that creditors must follow.

When Involuntary Bankruptcies Occur 

In general, creditors will only take steps to move forward with an involuntary bankruptcy when the debtor has sufficient assets that will allow the creditor to be repaid through the involuntary bankruptcy. If an individual or a business is insolvent and does not have any assets remaining, an involuntary bankruptcy is unlikely since it would not result in creditors receiving what they are owed.

What to Expect of Involuntary Bankruptcy 

How does an involuntary bankruptcy work, and what should you expect? Generally speaking, an involuntary bankruptcy will begin when a creditor (or multiple creditors, in some cases) files a bankruptcy petition with the bankruptcy court. In order to file an involuntary bankruptcy petition, the creditor or creditors must make clear that the debtor either has not paid debts that have been due, or that a receiver or an agent took control over the property of the debtor within the past 120 days.

When the involuntary bankruptcy petition has been filed, the debtor will have an opportunity to respond to the bankruptcy petition. Accordingly, if you receive notice of an involuntary bankruptcy petition under Chapter 11 or Chapter 7, it is critical to seek help from a lawyer as soon as possible. You will be able to attend a hearing, at which point the court will decide whether to dismiss the bankruptcy case or to allow it to move forward. Thus you may be able to stop the involuntary bankruptcy case from happening.

Contact a Bankruptcy Lawyer in West Palm Beach

 If you have questions about involuntary bankruptcy or need help handling an involuntary bankruptcy case and hearing, you should get in touch with one of the West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller to learn more about your options.



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