Most people come into our office wondering whether bankruptcy is the right choice for them. However, there are some instances where the choice is made for them because they have had an involuntary bankruptcy petition filed against them.
In order to better understand involuntary bankruptcies, it may be helpful to revisit the basic purposes of bankruptcy: to help people get rid of debts they can never pay and make a fresh start. However, there is a secondary purpose that is often overlooked in that bankruptcy also protects the interests of the creditors by ensuring that they are treated as fairly as possible. A creditor may actually prefer the fair treatment they will receive through the bankruptcy court even if it means that they will not receive the total amount that they are owed.
Involuntary bankruptcies involving individual consumers are very rare and are filed most often against businesses and other corporate entities. If you own a business or are wealthy and have valuable assets, it may be worthwhile to review some basic concepts related to involuntary bankruptcies.
If you’re worried about being subjected to an involuntary bankruptcy, the best thing you can do is to speak with a Minnesota bankruptcy lawyer as soon as possible.
Involuntary Bankruptcy is a Bankruptcy Initiated by The Creditors
As mentioned above, most bankruptcies are voluntarily filed by consumers or businesses in order to get out from under debts they are unable to pay. An involuntary bankruptcy, on the other hand, is a bankruptcy case filed by the debtor’s creditors - it’s involuntary because the debtor did not choose to file the case.
The Involuntary Bankruptcy Process
Similar to a voluntary bankruptcy case, the process begins when one or more creditors file a petition with the bankruptcy court asking that the court open a bankruptcy case. The creditors must allege that one of two situations has occurred:
- The debtor is not paying their debts as they come due; or
- Someone or some entity has taken control of the debtor’s property in order to enforce alien within the last 120 days
Once the petition is filed, the debtor has an opportunity to respond and explain why the bankruptcy shouldn’t be allowed to proceed. A hearing will be set, and each party will have the opportunity to argue their case. If the debtor prevails, the bankruptcy petition will be dismissed. If the debtor does not respond to the petition, the bankruptcy case will be allowed to proceed and the debtor will be required to participate.
A Minnesota bankruptcy attorney can help you respond to the petition and navigate the process. Don’t delay - if you fail to respond to the petition you may surrender valuable rights.
The Purposes of Involuntary Bankruptcy
As mentioned above, one of the purposes of bankruptcy is to protect the interests of creditors. Creditors pursue involuntary bankruptcy cases when they believe that their interests would be better served if the debtor was forced into bankruptcy. An example may be helpful in illustrating why creditors may pursue an involuntary bankruptcy.
Let’s assume that Mr. Smith owns a multimillion-dollar home. You own a landscaping company, and you performed $25,000 worth of landscaping work for Mr. Smith that he unfortunately never paid. As a result, you get a lien against the house, assuming that he will have to pay you if he ever sells the home. You then find out the property is in foreclosure, and it’s unlikely that you are going to get anything. In this scenario, you may file an involuntary bankruptcy petition to halt the foreclosure and protect your claim.
In most situations, bankruptcies are bad news for creditors because they are prohibited from taking any action to collect their debts. Involuntary bankruptcies make sense when there are significant assets that the creditors cannot attach for various reasons and they are worried that they will be totally unable to collect. For this reason, involuntary bankruptcies are typically filed against businesses or wealthy individuals that have significant assets.
How a Minnesota Bankruptcy Attorney Can Help
If you’ve received an involuntary bankruptcy petition, you should contact a Minnesota bankruptcy attorney right away. Bankruptcy law is extremely technical, and so it’s difficult for non-lawyers to navigate the process successfully. On top of that, involuntary bankruptcy is somewhat unusual, and there are a number of requirements that your creditors have to meet in order to proceed with the petition.
You need an experienced attorney who understands the law in this area. Your attorney can get the petition dismissed and help you formulate a strategy for moving forward, even if it means filing a voluntary bankruptcy down the road.
If You’re Facing Involuntary Bankruptcy, Contact Kain & Scott - A Minnesota Bankruptcy Firm
At Kain & Scott, our attorneys have the knowledge and skill to help you deal with your creditors. We help people across the state of Minnesota deal with the most difficult financial situations, and we’re certain that we can help you. If you’d like to schedule a free consultation with one of our bankruptcy lawyers, call us at 800-551-3292 or fill out our online contact form to see how we can help you.
