Involuntary bankruptcy refers to the practice where an individual or business is forced into bankruptcy by a creditor. To force an involuntary bankruptcy, an action may be filed by any one creditor of a debtor who owes money to less than twelve creditors. However, if there are more than 12 creditors to whom a debtor owes money, then three creditors must agree to force an involuntary bankruptcy. Yet, there are some restrictions that apply.
The requirements for Involuntary Bankruptcy include:
- The debt owed to the creditor must be more than $10,000,
- The debt owed must be unsecured,
- The involuntary bankruptcy must be made in good faith, and
- The creditor can prove that the debtor has made no effort to bring their account up to date.
A debtor can object to the involuntary bankruptcy forced on him/her. However, such objections might not get weight if the debt has been delinquent for some time and the debtor has refused to make payments to the creditor.
However, certain businesses, generally in the banking sector cannot be forced into bankruptcy. Except for those exempt businesses, any other businesses can be forced into bankruptcy.