Involuntary chapter 7 bankruptcy happens when a creditor files against you in bankruptcy court to force the sale of your non-exempt assets to satisfy a debt. Not just any creditor can file such a proceeding against you:
- You cannot have more than 12 unsecured creditors.
- The filing creditor must have a non-contingent, undisputed unsecured claim worth at least $13,475.00.
- If you have 12 or more creditors which have unsecured or partially secured claims, which total at least $13,475 then 3 of them must join in filing the involuntary bankruptcy.
Involuntary Bankruptcy Nightmare
Involuntary bankruptcy cases are few and far between. I have never filed or defended one. I had a friend involved in one. It was a completely bogus filing. The friend is a judge. A person came before him, and was found guilty and sentenced. The defendant decided to get even with the judge. This criminal filed an involuntary chapter 7 bankruptcy against him. The purpose was to destroy the judge’s credit score. It worked.
The bankruptcy court would not summarily dismiss the fraudulent filing. The court required the judge to make a showing that one of the above 3 things did not apply to him. My friend was able to do this, but not until he paid a attorney fees to contest the matter. Ever try to prove that something did not happen? It is virtually impossible. Ultimately the bogus involuntary bankruptcy case was dismissed. He is still coping with the damage to his reputation. Who won?
You Might Want To File Bankruptcy Anyway
An involuntary bankruptcy can be a good idea. You may have been thinking about a chapter 7 bankruptcy anyway. Such a case does not restrict your right to convert the case to a chapter 13. The downside for the creditor who files is that if assets are liquidated by the chapter 7 trustee, the creditor is paid after trustee cost and expenses, and he shares in the proceeds of the sale equal to the amount the other unsecured creditors receive.
Everyone Has More Than 12 General Unsecured Creditors
If you do not want to be in bankruptcy and an unsecured creditor files, think about it. You can’t have fewer than 12 unsecured creditors. Can you think of a circumstance where you would not have this many? If you owe:
- Cell phone bill
- Gas bill
- Light bill
- Car repairs
- Attorney fees
- Debts to friends
- Medical bills (each is a separate unsecured creditor)
- Credit card bills (again each is a separate unsecured creditor)
This short list should easily get you over the top of the required number of general unsecured creditors required for an involuntary bankruptcy case. Remember for it to happen you need to be under the bar, not over. This is the main reason that the involuntary bankruptcy case is so rare, and hardly ever seen.
Others playing the bankruptcy alphabet game:
- Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell thinks I is for involuntary petition too.
- New York Bankruptcy Lawyer, Jay S. Fleischman says I is for Income.
- Marin County Bankruptcy Attorney, Catherine Eranthe claims I is for Income as well.
- For Northern California Bankruptcy Lawyer, Cathy Moran I is for IRS.
- Colorado Springs Bankruptcy Attorney Bob Doig says I is for In Forma Pauperis (he speaks lawyer).
- Big Island Bankruptcy Attorney, Stuart T. Ing says I is for Independent Contractor.
- Michigan Bankruptcy Lawyer, Christopher McAvoy talks about I is for income Tax Refunds.
- Philadelphia Suburban Bankruptcy Lawyer, Chris Carr takes on I is for IRA’s, Pensions, etc., will you lose them in Bankruptcy?
- Los Angeles Bankruptcy Attorney, Mark J. Markus discusses I is for Insiders.
- Livonia Michigan Bankruptcy Attorney, Peter Behrmann says I is for Internal Revenue Service.