What is an involuntary bankruptcy?

Involuntary bankruptcy is a legal process used by creditors to obtain repayment from debtors who are delinquent on paying their debts. It is different from voluntary bankruptcy, which is when a debtor chooses to file for bankruptcy on their own. In California, creditors may seek to initiate an involuntary bankruptcy if a debtor has two or more creditors and owes more than $14,425 in debt. To file a petition, a creditor must state the amount of debt, how it was acquired, and proof of being unable to collect the debt by other means. If the petition is accepted, the court then decides whether the debtor is legally insolvent or not. If the court decides the debtor is insolvent, then the debtor will be forced to enter bankruptcy. This means all of their assets will be liquidated and divided among the creditors. Any property will be sold and the proceeds used to settle the debts owed. The debtor will then have to put together a repayment plan to the court, and creditors will have to wait for payment from the court. Although involuntary bankruptcy is more advantageous to creditors, the process can be a difficult experience for the debtor. It can be expensive and time-consuming and it can also have a negative impact on the debtor’s credit score. Therefore, if you are having trouble paying your debts, it is better to seek help early on and come up with a plan to resolve the issue before it reaches the court.

Related FAQs

What is the meaning of “creditors’ rights litigation”?
What is a “deficiency claim”?
What is the meaning of “general unsecured debt”?
What is the purpose of the UCC?
What is a discharge injunction?
What are the different strategies available to creditors to collect on debts?
What is a deficiency judgment?
When is a creditor’s claim considered “timely”?
What is a creditors’ committee?
What is the meaning of “secured debt”?

What is an involuntary bankruptcy?

Related FAQs

Related Blog Posts