What is an Involuntary Bankruptcy?

When a debtor chooses to file bankruptcy, it is called a voluntary bankruptcy. However, in certain situations, a creditor could force a debtor into an involuntary bankruptcy. There are many requirements that must be met before your creditors can file a petition for involuntary bankruptcy.  These requirements are provided in the Bankruptcy Code.

First, a debtor must generally not be paying his or her debts as they come due by at least three different creditors. That means there must be three or more creditors who are claiming that the debtor is not paying his/her debt as it comes due.

Second, those debts cannot be contingent on a finding of liability or the subject of a bona fide dispute as to liability or amount. In many cases, liability can be challenged if the debtor has brought a good faith dispute that he/she does not owe the full debt. The debtor might refuse to make timely payments, such a creditor cannot push the debtor into involuntary bankruptcy. This offers protection to the large number of individuals who are wrongfully treated by their creditors.

Last, the claims against the debtor must be at least $14,425 when added together. Once these three requirements are met, however, the debtor may find other channels of protection. First, the debtor is given a chance to rebut any of the claims against him/her. However, once all three requirements have been met, the debtor is going to have to demonstrate evidence indicating he/she is not liable for the debt. As long as the debtor can establish a legitimate defense against liability, either factual or legal, then the involuntary bankruptcy will be dismissed.

If you have been served with a petition for involuntary bankruptcy, it is essential to contact a bankruptcy attorney in Salt Lake City as soon as possible. By the time you receive notice of the claim,  the ball is already rolling. And you may find yourself too steep on the slope if you wait too long to contest the claim against you.