If you have found yourself facing a growing pile of bills without the means to pay them, you may have heard people suggest bankruptcy. You may have decided you don't want to file bankruptcy or are afraid to file because of the lasting effects on your credit. What you might not realize is a bankruptcy filing isn't always your choice. In some cases, your creditors can go to court and force you to file. This is a process known as involuntary bankruptcy, and you should familiarize yourself with it if you're overwhelmed with debt. Here's a look at a few questions you may have about involuntary bankruptcy to help you understand what could lie ahead.
Wait, Why Would My Creditors Do That?
When your creditors discover you are financially overextended and won't be able to satisfy your accounts, their first concern will be to recover as much as they can on the outstanding debt. By requesting an involuntary bankruptcy, the creditors are taking a proactive approach toward recovering some of those funds from the settlement.
Another reason creditors may opt for involuntary bankruptcy is because you are legally required to stop using your assets as soon as they file. Your bank accounts and other liquid assets will be frozen as part of the process, so your creditors have a better chance of receiving a settlement. If the creditors are concerned you might give away your assets or drain your savings account, this is one way that they can prevent that.
I Owe Multiple Creditors – What Now?
If you currently owe several creditors, there are some stipulations that do apply. For example, the courts will require that several creditors be in agreement to file. And, any creditor involved in an involuntary bankruptcy filing must prove that you are not making any regular payments and are past due.
Can't I Do Something to Protect Myself From It?
There are some people who are protected from involuntary bankruptcy. If you're the owner of a non-profit, an insurance company, a bank, farm or credit union, your business may be protected from involuntary bankruptcy. That means your creditors wouldn't be able to force you into bankruptcy. If you don't fall into one of these protected groups, there is no way to avoid the filing if your creditors opt for it.
Does a Creditor's Filing Automatically Force Me Into Bankruptcy?
No. Once your creditors file for involuntary bankruptcy, you have an opportunity to respond. You'll be provided with details about your rebuttal period, which is your chance to speak up and object to the petition. The time frame varies in each court district, so make sure you look at the paperwork carefully to see how long you have to object. Otherwise, you can accept the petition and agree to the bankruptcy.
If I Object, What Are My Options?
When you object to an involuntary bankruptcy filing, you're provided with a court date. You have to appear in court to explain why you don't think you should be forced to file bankruptcy. A bankruptcy attorney can help you understand what your options are. You might be able to prove that one of your creditors was incorrect in the balance that they've claimed you owe or in their assertion that you aren't making payments. Inaccuracies like that are enough to have the case dismissed in some situations.
Additionally, if you can prove that the creditor who initiated the filing is trying to manipulate the situation for their benefit, such as if they are trying to get control of your business, this will be grounds for dismissal as well in most courts. Click to read more here.