Although this and virtually all other consumer Bankruptcy blogs discuss Bankruptcy cases that are voluntarily filed by individuals, occasionally someone asks whether they can be forced into Bankruptcy by a creditor or another party. The answer is yes, it is theoretically possible, but very rare in practice. The process is called an “Involuntary Bankruptcy Petition” and as the name implies it is when the individual is thrown into Bankruptcy against his or her will. In order to file an Involuntary case, a creditor must show that the debtor is not generally paying his or her debts. If the debtor has more than 12 creditors (and most people do), it takes three creditors to file. After an Involuntary Petition is filed, there is often a discovery process and then a trial to determine whether or not the person deserves to be in Bankruptcy. There are many reasons that involuntary cases are rare, especially in non-business cases. Why would a creditor, such as a lender or credit card issuer, spend legal fees investigating and filing a case when their debt will be discharged? If a creditor is going to spend money on a lawyer, they are going to file a lawsuit and try to collect their debt instead of shooting themselves in the foot with a Bankruptcy case. Occasionally, someone will file an Involuntary case out of spite or ill will, perhaps because they believe someone cheated them out of money, but Bankruptcy law allows stiff penalties for Involuntary cases filed in bad faith.
Are there situations in which an Involuntary case can legitimately be filed against an individual? Sure, they may be appropriate to file when the person has significant assets (measured in the hundreds of thousands or more) and creditors have a good basis to believe that the person is transferring assets to shield them from the creditors. The creditors may believe a Bankruptcy case is appropriate so a Chapter 7 Trustee can investigate and recover the assets for the benefit of the creditors. These creditors would have the benefit of very good lawyers and would have solid evidence of the person’s misconduct. Even then, they face sanctions if they are wrong. A few years ago I represented a real estate developer who had been forced into an Involuntary case by a single large creditor. Although the creditor had the benefit of two lawyers working on the case, at trial it was shown that the creditor acted in bad faith. Prior to the Court deciding on the amount of damages due my client, we settled the case with the creditor releasing my client of several hundred thousand dollars in debt. Even though the creditor had a legitimate claim for a lot of money, it was a costly mistake to file the case.
If you are concerned about someone forcing you into Bankruptcy by filing a case on your behalf, the chances are virtually zero it will happen. Even in a large district like the Northern District of Georgia, only a couple may be filed in a year and they are almost always against businesses. If it does happen, of course you need to contact a good Bankruptcy lawyer immediately.