Chapter 7 bankruptcy is a process that involves the liquidation of the debtor's disposable assets. This means selling off a lot of what you might own to pay back a portion of what is owed to your creditors. Unsurprisingly, some folks may feel like they just need some time and want to try to restructure their debts.
There is a way, however, that you might be forced to pursue Chapter 7. Here's what a bankruptcy attorney would likely tell you about this possibility.
Why Can Someone Push You Into Chapter 7 Bankruptcy?
The underlying legal logic is that someone who's going to eventually end up liquidating their assets shouldn't drag out the process. For example, someone trying to restructure personal debts under Chapter 13 would be given three to five years to execute a repayment plan. However, it wouldn't make a lot of sense to string that time out if it was clear they couldn't afford to pay even a reduced total.
Also, it's important to appreciate that bankruptcy isn't designed just to protect debtors. The law also has a duty to protect the interests of creditors, and that allows involuntary bankruptcy.
Who Can Do It?
One of two parties can, under some very specific circumstances, push you into a Chapter 7 bankruptcy. First, a court can give you some very strong encouragement if you've already attempted a restructuring. It's extremely rare for a judge to force the issue, but they will make it clear that you should pursue liquidation.
A somewhat different scenario can play out with creditors. If you have at least 12 unsecured creditors, a group of three of them may petition the court to force you into an involuntary bankruptcy if you owe them at least $15,775. Note that unsecured debt refers to things like credit card debts, while secured debts are things like mortgages and car loans that are backed by collateral.
Creditors generally don't push the issue, though, unless a debtor has a lot of assets. For example, they might move for an involuntary bankruptcy if the debtor is a business that owns lots of valuable equipment.
How Do You Respond?
If you haven't contacted a Chapter 7 bankruptcy attorney, that's the first thing to do. Secondly, you may want to consider whether it's the right thing to do. Creditors and courts rarely exercise this option. If you do feel it's worth fighting, the most important thing is to raise questions about what is owed and to who. The main defense against an involuntary bankruptcy is that the debts involved are either invalid or unclear.
For more information, contact a chapter 7 bankruptcy attorney in your area.