Involuntary Bankruptcy Petitions By Single Creditors
Many asset protection clients are concerned about involuntary bankruptcy. Involuntary bankruptcy can deprive debtors of some asset protections which are effective in the creditor's collection efforts in state court proceedings. For instance, homestead protection is unlimited in state court but is restricted in amount and by time in a bankruptcy court. Debtors with otherwise effective asset protection plans often ask whether a single, aggressive creditor forcing them into bankruptcy court. The general rule is that one creditor cannot force an involuntary bankruptcy in order to collect the debt.
A creditor's petition for an Involuntary bankruptcy requires that the creditor allege and prove with evidence that the debtor is not generally paying his debts. As an example, one bankruptcy court held that, "Under Bankruptcy Code, involuntary bankruptcy petition cannot be maintained in federal court unless it can be shown that debtor is not generally paying his debts; consequently, under most circumstances, debtor's failure to pay single creditor will not justify granting of involuntary bankruptcy petition..." As long as a debtor can show that he is current on all or almost all of his other debts including credit cards, mortgages, and other obligations the debtor will probably successfully defend an involuntary bankruptcy petition of a single aggressive creditor.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
