Can Creditors Force Me Into Bankruptcy?

You may have heard news stories about creditors banding together to “force” a company into bankruptcy.  Can creditors actually do this, and can it be done to an individual who does not want to file bankruptcy? Generally speaking, creditors do not want an individual to file bankruptcy.  When a person files bankruptcy, he or she gains a great deal of protection from creditor harassment, and creditors may be forced to write off their debts when the bankruptcy case reaches discharge.  However, there are a few instances in which a creditor will try to force a company or an individual into bankruptcy if the debtor meets the test for involuntary bankruptcy filing.

Involuntary Bankruptcy—Purpose and Limits

Involuntary bankruptcy is a relatively rare proceeding but the law does provide for it.  An involuntary bankruptcy is usually not filed against individuals, and your creditors cannot force you to file a Chapter 7 or Chapter 11 unless you meet certain tests.  Chapter 13 involuntary plans are not permitted. An individual or company can be forced into bankruptcy if all of the following conditions apply, according to Section 303 of the Bankruptcy Code: For debtors with 12 or more creditors:

• At least three creditors must have claims that are note contingent as to liability.
• The aggregate value of the qualifying claims must be at least $14,425 in unsecured debt.

For debtors with less than 12 creditors:

• At least one creditor must have a qualifying claim.
• The creditors must be owed at least $14,425 more than the amount of secured debt.

Additionally, creditors must be able to show that the debtor is not paying debts in a timely fashion or has turned over the custody of financial decision to a third party.

Why Would Creditors Force A Bankruptcy?

Creditors would only choose to force a bankruptcy when an individual or company has enough assets to make this proceeding worthwhile.  This is why most individuals never face the prospect of involuntary bankruptcy:  they simply do not have the assets to tempt creditors to take this step.  However, if a debtor does have some significant asset, such as a large piece of property that is already paid for, creditors could conceivably initiate an involuntary bankruptcy proceeding. The Oswalt Law Group represents both individuals and business owners who are considering filing bankruptcy.  Talk to the knowledgeable attorneys at the Oswalt Group today to learn more about how to protect yourself under bankruptcy law.