Involuntary Bankruptcy FAQ
A San Francisco bankruptcy attorney provides an Involuntary Bankruptcy FAQ
What is involuntary bankruptcy?
Involuntary bankruptcy arises when creditors of an individual or a corporation file a petition with the bankruptcy court in order to start bankruptcy proceedings against a debtor. It is called “involuntary” because the debtor is not making the decision on whether to file, rather the debtor’s creditors are making that decision.
What chapters of the bankruptcy code allow for an involuntary filing?
Involuntary bankruptcy proceedings can be brought against an individual or a corporation for chapter 7 and chapter 11 bankruptcies. The bankruptcy code does not provide for an involuntary chapter 13 filing.
Are involuntary bankruptcies common?
No, involuntary filings are very rare and almost never brought against individuals. Involuntary proceedings against businesses are more common but the overall percentage of those involuntary cases is still very low.
What happens to the debtor’s estate in an involuntary chapter 7 proceeding?
Generally a trustee is appointed to oversee the debtor’s estate in an involuntary proceeding to prevent the loss of the estate. If the debtor operates a business the trustee might also be appointed in order to continue with the business operations.
Can the bankruptcy court dismiss an involuntary proceeding?
Yes, the bankruptcy court has the power to dismiss involuntary bankruptcy actions. If the debtor does not waive his or her right to judgment, the bankruptcy court may grant judgment in favor of debtor against petitioners for costs or attorney’s fees. If the proceeding was brought in bad faith the court may award debtor any damages caused by the filing or punitive damages.
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