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What is an involuntary bankruptcy?

If you’re like most in Salem who are contemplating bankruptcy, you may view it as a way to keep your creditors from pursuing any further action against you as you attempt to get back on to a firm financial footing. Yet could your creditors, if they wanted to, essentially push you into bankruptcy in order to collect on what you owe them? The idea of involuntary bankruptcy may seem completely foreign to you, but in certain cases, creditors can use it as debt collection tool.

Typically, an involuntary bankruptcy is only filed against businesses or wealthy individuals. That is because if you literally have no assets, it offers your creditors no advantage to pursue such action. You still wouldn’t be able to pay them, and they wouldn’t be able to take any action against you due to the bankruptcy. However, if they believe you are able to pay, filing a Chapter 11 bankruptcy against you forces you to disclose your assets to the bankruptcy court.

According to Title 11 Section 303 of the U.S. Code, In order to initiate an involuntary bankruptcy, a single creditor must owed more than $10,000 more than the value of any lien against you. If there are more than 12 creditors involved, at least three must jointly share the amount in claims. Once the petition has been filed against you, you typically have 20 days to respond. If you don’t, the court will allow the bankruptcy to go forward.

However, if you respond, you can then challenge their claims regarding your assumed assets. If the court rules in your favor, you could be compensated for your attorney fees and court costs. If it’s further discovered that your creditors filed the petition in bad faith, you could also be entitled to damages.  

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