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Involuntary Bankruptcy

Involuntary bankruptcy is a protection for creditors to prevent unfair activities by the debtor. It is an option for creditors who suspect that a debtor is diverting or embezzling funds in order to avoid payments. A creditor can petition the bankruptcy court to force the debtor into bankruptcy. Creditors may be able to recover payments or wrongful transfers by the debtor by forcing an involuntary bankruptcy. A chapter 7 involuntary bankruptcy results in the debtor liquidating his/her assets to pay off the creditor(s).

A debtor who regularly misses payments or has appointed a custodian for his/her debts within 120 days of filing a bankruptcy petition may be a likely candidate for involuntary bankruptcy. Involuntary bankruptcy cannot be used against farmers, banks, nonprofit groups, insurance companies, and credit unions and savings and loans institutions.

There is a claim threshold of $14,425 that creditors must show the debtor owes in order to start an involuntary bankruptcy case. The claims have to be unsecured. Claims must also be undisputed, meaning there cannot be disagreement on the debt amount or ongoing litigation concerning the debt.

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