Involuntary, sometimes called forced, bankruptcy is a federal legal proceeding that allows creditors to force a debtor to file without their consent. Typically, it occurs to recover unpaid debts through reorganization or liquidation, and can only be initiated under a Chapter 7 action.
However, these procedures are relatively rare, accounting for less than one percent of all filings, due to the significant costs incurred by creditors if the court dismisses the case. A consultation with one of our knowledgeable bankruptcy attorneys could help you learn more about involuntary bankruptcy in Dallas and how to protect your rights.
Requirements for Filing
In Dallas, to initiate forced bankruptcy, petitioning creditors must meet strict guidelines under federal legislation. According to 11 United States Code § 303, if the debtor has 12 or more eligible creditors, at least three of them must join the petition. One creditor may file on their own if there are fewer than 12.
The federal statute also states that the outstanding debt for the creditors’ filings must be a total of at least $21,050 in unsecured claims. Additionally, it forbids filing claims that are contingent on future events or subject to legal disputes regarding liability or the amount of debt. Finally, the debtor must be behind on making payments towards the debt or have stopped paying it back altogether.
It is important to note that there are exceptions to who may be petitioned for involuntary bankruptcy, such as nonprofit corporations and farmers. An experienced lawyer could help you understand who may be immune from legal action.
What Is the Process?
The involuntary insolvency process in Dallas is generally as follows:
- Creditors petition the appropriate Bankruptcy Court, detailing the reasons for initiating the action and the debtor’s failure to pay
- The debtor has 21 days to file a response contesting the petition
- If uncontested, the court enters an order for relief, allowing the case to proceed
- If contested, a hearing occurs, allowing the court to determine eligibility; the case may be dismissed if it does not meet the requirements
- The court appoints a trustee after approving post-order proceedings
Understanding proceedings could help you determine the best course of action for your case.
Risk to Petitioning Creditors
The law provides the Bankruptcy Court Judge with the authority to require the petitioning creditors to pay the debtor’s outstanding costs, including reasonable attorney fees, if creditors initiate an involuntary petition and the court dismisses it for any reason other than by consent. For this reason, the federal court urges creditors to use this tool with caution. The court may also award the debtor additional damages if it determines that the creditors initiated the action in bad faith.
A qualified attorney could help you navigate the strict requirements of the complex legal system. Whether you are a petitioning creditor or a debtor dealing with involuntary bankruptcy issues in Dallas, we are here to help.
Speak to a Knowledgeable Dallas Attorney About Involuntary Bankruptcy
Involuntary bankruptcies are rare because creditors usually only initiate them when they believe debtors have the means to make payments on their outstanding debt but have chosen not to. It is always in your best interest to consult with a qualified lawyer, whether you are a debtor facing involuntary bankruptcy in Dallas or a creditor considering legal action.
Allmand Law Firm, PLLC, could provide advice, guidance, and answers to your questions about procedures and guidelines, helping you through the process regardless of which side you are on. Call us today to learn more and schedule a consultation.
