What to Know About Involuntary Bankruptcy

While it’s true that many people choose to file bankruptcy as a way to deal with indebtedness, there are those who find themselves in bankruptcy proceedings through no choice of their own. This sort of involuntary bankruptcy is rare for individuals (it’s more commonly used against corporations) but is certainly worth knowing about before the petition shows up in your mailbox or server arrives on your doorstep.

Creditor Claims

Very specific legal conditions must exist in order for creditors to force an involuntary bankruptcy:

• The debtor must be eligible for either Chapter 7 or Chapter 11, and excludes non-profit organizations, family farmers, and other farmers.
• When 12 or more creditors exist for the debtor, three or more are required to join the petition, while only one creditor is required when fewer than 12 creditors exist.
• There is a minimum amount of aggregate unsecured debt owed, which changes periodically but is roughly $22,000.
• The debt must not be related to a dispute or be contingent on any future events.
• Creditors must be able to demonstrate that debtors are not making on-time payments toward their debt.

Contesting the Petition

The debtor must respond to the petition within 21 days or the court will automatically rule in favor of the creditors. If the debtor chooses to contest the petition, they will have to be able to demonstrate that the debts are either contingent, disputed, or that they are being paid as they come due. There will be a period of time allotted for discovery before scheduling a hearing. The hearing will be held giving  both parties an opportunity to present their side to the judge. The debtor may argue any of the following:

• There is a legitimate dispute as to the amount owed.
• The claim falls short in that it either lacks the required number or creditors or the amount owed does not meet required limits.
• The debtor is making the payments on the debt as it comes due.
• The creditors are pursuing this action as a way to harass the debtor, not to legitimately collect owed debt.

If the debtor is successful, it could result in having the court dismiss the case, which means the costs associated with it–attorney’s fees, court costs, and sometimes even damages–could be the creditors’ responsibility. If the petition is dismissed, the court may also prohibit consumer reporting agencies  from containing information related to the case.

The Legal Help You Need

The experienced Miami bankruptcy attorneys at The Law Office of Julia Kefalinos can assist with all of your bankruptcy needs. To discuss, schedule a confidential consultation in our Miami office today.

Source:

uscourts.gov/sites/default/files/form_b105.pdf