We often hear that someone was “forced into bankruptcy.” Usually that means that the person decided that his debt was simply too much. Maybe creditors were garnishing wages, or a house was in foreclosure or a vehicle had been repossessed. But in most cases the person wasn’t “forced” to file bankruptcy. It was a voluntary act. The person might have felt he had no other option but he still chose to file. In fact, the petition is formally named Voluntary Petition in Bankruptcy.
However, it is possible to truly be forced into bankruptcy, to be put there involuntarily by your creditors. It’s very unusual but a means exists. Under the Bankruptcy Code, three or more creditors (only one is needed if there are fewer than 12 total creditors) can file an Involuntary Petition in bankruptcy. The creditors have to meet certain requirements, chief among them is that the debts owed to them are fully liquidated, not contingent and are undisputed. If there is any type of dispute over a debt, either as to whether it exists at all or the amount that is owed, the creditor is not a qualifying creditor and cannot be one of the three who signs the involuntary petition. A debt must also be non-contingent, meaning it can’t be a debt that doesn’t exist unless something happens first. An example of this is where a person co-signs on another person’s loan. Unless the other person defaults on their loan, the co-signer only has a contingent liability. Such a debt wouldn’t qualify as one of the types that can file an involuntary petition.
Not the Norm
Involuntary petitions in bankruptcy are rare because they are intended to be the exception. Creditors who file involuntary petitions might find themselves liable for damages to the alleged debtor if it turns out that the petition was improperly filed. So don’t worry — you most likely won’t be forced into bankruptcy in the sense that you are dragged there by your creditors. If you have bankruptcy questions, contact us here, or call or text (801) 413-3708, or email email@example.com.