Typical debtor

[Yami]

[HHM]

Although it is legally possible to bring an involuntary BK against an individual, it almost NEVER happens. Involuntary cases are almost exclusively used in the business realm or for high net worth individuals with significant non-exempt assets.

Since involuntary cases are so rare, it is hard to give you a profile for a typical involuntary case. They are rare because there is usually very little benefit to forcing someone into a BK as there are better avenues for collection. Keep in mind, an involuntary BK is a method of "debt collection".

The only time an involuntary BK makes sense is if the business has significant, valuable assets, there are a limited number of creditors...and management is either inept, frauds, or just plain out of control.

[Yami]

Although it is legally possible to bring an involuntary BK against an individual, it almost NEVER happens. Involuntary cases are almost exclusively used in the business realm or for high net worth individuals with significant non-exempt assets.

Since involuntary cases are so rare, it is hard to give you a profile for a typical involuntary case. They are rare because there is usually very little benefit to forcing someone into a BK as there are better avenues for collection. Keep in mind, an involuntary BK is a method of "debt collection".

The only time an involuntary BK makes sense is if the business has significant, valuable assets, there are a limited number of creditors...and management is either inept, frauds, or just plain out of control.

Thanks a lot! You refer to "better avenues" for debt collection in the event of a Chapter 7 involuntary case, which are those avenues?

[lrprn]

Thanks a lot! You refer to "better avenues" for debt collection in the event of a Chapter 7 involuntary case, which are those avenues?

HHM meant there are better avenues for debt collection INSTEAD OF filing an involuntary bk. Depending on the type of debt and the state laws where the debt 'lives', wage garnishment and getting a lien placed on debtor assets are two excellent options creditors use to collect debt owed and not paid.

[HHM]

Yami...what is your concern about involuntary BK. Let's back-up and make sure we all understand what an involuntary BK is. An involuntary BK occurs when a creditor (I think you actually need at least 3 creditors, or a total of 3 persons in interest, i.e. persons with claims against the debtor), with proper standing in court, files a petition on behalf of the debtor to force the debtor into BK.

In the business realm, an involuntary Chapter 7 BK forces a company to liquidate its assets and pay its creditors. But doing so is a tool of last resort because it is costly, cumbersome, and rarely makes the creditors whole; generally speaking, if the business is still capable of making money, it is better for the creditors that the company do so. The normal process a creditor takes to get money paid when a business stops paying on the debt is to sue, perhaps put certain assets in receivership, and then litigate the lawsuit.

The ONLY time I have even seen an involuntary case considered against an individual is when the person has significant net worth (million+ $$), AND much of that worth is in non-exempt assets. But agian, usually, the the debt associated with the involuntary BK is related to some business transactions.

I wouldn't worry about an involuntary, and if you are on the other side (i.e. considering whether to file an involuntary agains someone), you better get very good legal advice...filing an involuntary almost NEVER makes sense.

In any event, involuntary cases are discussed in Section 303 of the BK code.

[Yami]

Yami...what is your concern about involuntary BK. Let's back-up and make sure we all understand what an involuntary BK is. An involuntary BK occurs when a creditor (I think you actually need at least 3 creditors, or a total of 3 persons in interest, i.e. persons with claims against the debtor), with proper standing in court, files a petition on behalf of the debtor to force the debtor into BK.

In the business realm, an involuntary Chapter 7 BK forces a company to liquidate its assets and pay its creditors. But doing so is a tool of last resort because it is costly, cumbersome, and rarely makes the creditors whole; generally speaking, if the business is still capable of making money, it is better for the creditors that the company do so. The normal process a creditor takes to get money paid when a business stops paying on the debt is to sue, perhaps put certain assets in receivership, and then litigate the lawsuit.

The ONLY time I have even seen an involuntary case considered against an individual is when the person has significant net worth (million+ $$), AND much of that worth is in non-exempt assets. But agian, usually, the the debt associated with the involuntary BK is related to some business transactions.

I wouldn't worry about an involuntary, and if you are on the other side (i.e. considering whether to file an involuntary agains someone), you better get very good legal advice...filing an involuntary almost NEVER makes sense.

In any event, involuntary cases are discussed in Section 303 of the BK code.

Thank you for your detailed overview of the concept of an involuntary BK! The thing is I am not American, and I am studying BK law under American Law, which is not very easy at first glance. As you may imagine, I am making a great effort to study the theory and that is why I ask myself a lot of questions, such as the ones that I have posted.

[Yami]

HHM meant there are better avenues for debt collection INSTEAD OF filing an involuntary bk. Depending on the type of debt and the state laws where the debt 'lives', wage garnishment and getting a lien placed on debtor assets are two excellent options creditors use to collect debt owed and not paid.

Thank you! Now, I have a clearer picture of the situation through the examples you provided.