How to Face Involuntary Bankruptcy

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An individual or business can be forced into involuntary bankruptcy if creditors feel this is the only way they will get at least some of the money they are owed. This process is rather rare, especially for individuals, but like any type of bankruptcy, you should get a lawyer's help if you face this financial problem. Know that it is the responsibility of your creditors to prove you qualify for involuntary bankruptcy, so the only thing you should do is listen to your lawyer's advice regarding a filing strategy.

Regulations of Involuntary Bankruptcy

Not everyone is eligible for involuntary bankruptcy, so your creditors need to prove you are. If you have at least 12 creditors, then three need to be involved in the involuntary bankruptcy case for it to be valid. If you have fewer than 12 creditors, only one needs to start the case. You need to owe a certain amount of unsecured debt, and the debts cannot be disputed. You can only file for Chapter 7 or 11 during involuntary bankruptcy, not Chapter 13. This means you can liquidate all your assets via Chapter 7, allowing your creditors to get at least some money when the trustee sells your items. You also have the option of filing for Chapter 11, which means you can keep your assets while you reorganize your finances. Businesses use this chapter most often, allowing them to continue to make money despite the bankruptcy, but individuals can also use this route. 

What to Do

If you wish to avoid involuntary bankruptcy, you need to object within 20 days of receiving notice of this action. You will have to present your argument in court as to why you should not go bankrupt, and you will likely have to work out a plan with creditors soon afterward if you wish to avoid involuntary bankruptcy. If you decide to continue with the bankruptcy, you should discuss a filing strategy with your attorney. Most individuals file for Chapter 7, and if you have few assets you would miss, this may be the best option. Once your assets are sold, you will no longer owe most of your debts and can start over financially. On the other hand, if you own a business that is still making a profit, you may want to file for Chapter 11 so you can continue. This gives you time to reorganize your debts so you can satisfy your creditors with payments while also staying in business.

Talk to Your Attorney

A lawyer will help you decide whether to object to the involuntary bankruptcy or go along with it. If you decide to continue with the bankruptcy, you will need to come up with a strategy, so ask your lawyers any questions you have about determining a way to get the best result possible.

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