Voluntary vs. Involuntary Bankruptcy

There are two different methods that bankruptcy proceedings are started, voluntary and involuntary bankruptcy.

A voluntary bankruptcy is the most common type of bankruptcy proceeding. It is initiated by a debtor who wishes to seek relief from their debt burden.

Involuntary bankruptcies are very rare. They are initiated by creditors who want to receive payment for what they are owed from a debtor.

What is a Voluntary Bankruptcy

When people talk about bankruptcy, most are referring to a voluntary bankruptcy. In a voluntary bankruptcy, you decide if and when to file bankruptcy and which chapter of bankruptcy is right for you. You then file the bankruptcy petition and other papers with the bankruptcy court. Most people file either a Chapter 7 or Chapter 13 petition.

What is an Involuntary Bankruptcy

An involuntary bankruptcy starts when a creditor or creditors file a bankruptcy petition against a person or corporation who owes them money. One reason why involuntary bankruptcy is that there are many restrictions on creditors’ ability to file an involuntary bankruptcy against individual consumers.

Creditors cannot:

• file under Chapter 13, they can only file a Chapter 7
• file against family farmers or fishermen, or
• file a joint bankruptcy against a married couple.

In addition, creditors must meet one of the following conditions to file an involuntary bankruptcy:

• A single creditor can file an involuntary case if the consumer has fewer than twelve unsecured creditors and the creditor has an unsecured claim that meets the required amount.
• Three or more creditors can file an involuntary case if the consumer has twelve or more unsecured creditors and the petitioning creditors have claims that meet the minimum required amount.

What to Do If a Creditor Files an Involuntary Bankruptcy Against You

It is very rare for a creditor to file an involuntary bankruptcy against an individual, but if it happens to you, you have several options:

Continue with the bankruptcy. Bankruptcy might be the best option for you because it offers many protections that you cannot get outside of bankruptcy. Creditors often do worse in bankruptcy than if they pursued their debts outside of bankruptcy — which is why it’s rare for creditors to file an involuntary bankruptcy.
Convert to a Chapter 13 bankruptcy. If you want to continue with the bankruptcy but feel that Chapter 13 would be better for you, you can convert the case to Chapter 13 bankruptcy.
Contest the involuntary bankruptcy. If you don’t want to go through bankruptcy, you can contest the involuntary filing. Most likely, you’ll need a bankruptcy lawyer to do this.

Contact Us

While involuntary bankruptcy filings are rare, they can and do happen. If your creditors have started taking legal action against you, it is time for you to call the experienced bankruptcy attorneys from Phoenix Fresh Start Bankruptcy. We are ready to fight your creditors for you. We’ll protect your rights and give you the best shot at a fresh start financially. Stop being terrorized by your creditors.