Understanding Forced Bankruptcy
Forced bankruptcy, also known as involuntary bankruptcy, occurs when creditors band together and compile a petition against a debtor requesting that he or she file for bankruptcy. While this type of insolvency is quite rare, it does occur, and individuals or companies can, in fact, be forced to file for bankruptcy. Forced bankruptcy most commonly occurs in business settings.
How Involuntary Bankruptcy Happens
When creditors are upset with debtors for failing to keep up with monthly payments, then may choose to file an involuntary bankruptcy petition. The following steps outline a forced bankruptcy case:
- Creditors file a petition with the U.S. Bankruptcy Court
- Debtor has 20 days to respond or object to this petition
- If the debtor objects, then the case goes to trial for resolution
- If the debtor takes no action, then the bankruptcy process begins
- If forced to file for bankruptcy, the debtor can only file for Chapter 7 or Chapter 11
Under Chapter 7 insolvency, the debtor is allowed to continue normal business operations and reaches a loan repayment solution through reorganization of debts. Typically, monthly payments will be reduced and payment periods will be extended.
Under Chapter 11 bankruptcy, the debtor must halt all business operations and liquidate assets in order to raise money to pay the debts.
Exceptions to Forced Bankruptcy Cases
Any person or party that owes money may be filed against in an involuntary bankruptcy case, with the following exceptions:
- Farmers
- Non-profit entities
- Banks
- Insurance companies
- Credit unions
- Savings-and-loans establishments
- Railroads (Chapter 7 only)
- Stock/commodity brokers (Chapter 11 only)
If you do not fit into one of the above categories and are not meeting payment deadlines for loans, then you may be a target for forced bankruptcy.
Contact Us
If you would like to learn more about forced/involuntary bankruptcy, the Austin bankruptcy lawyers of Slater Kennon & Jameson, LLP can help. Please contact our offices today at 512-338-1100 to speak with one of our experienced lawyers about your concerns.