A voluntary case is commenced by filing a petition with the bankruptcy court. The commencement of a voluntary case constitutes an order for relief under the relevant chapter. An involuntary case is commenced by filing a petition with the bankruptcy court under Chapter 7 or 11.
A voluntary bankruptcy case begins with the filing of a petition in the bankruptcy court. Bankruptcy courts, a part of the federal court system, are established in every state. The proper location for the filing of the bankruptcy is generally determined by where a business debtor has its principal place of business or principal assets or where an individual lives. The debtor is required to file schedules of assets and liabilities, current income and expenditures, statement of financial affairs, a schedule of executory contracts and others upon the filing of a voluntary petition.
Creditors begin an involuntary bankruptcy case by filing a petition and a summons with the clerk of the U.S. Bankruptcy Court. The debtor has 20 days to file objections. If that happens, the case can go to trial. If not, the bankruptcy proceeds. An involuntary case can be initiated only under Chapter 7 or Chapter 11 of the Bankruptcy Code. A Chapter 7 or Chapter 11 petition can be filed against anyone or any entity that owes money, except for:
- Nonprofit groups
- Insurance companies
- Credit unions
- Savings-and-loan institutions
Requires Creditors Which Hold Claims
Where a debtor has 12 or more creditors, an involuntary petition requires the participation of at least 3 creditors who are owed a minimum of $10,775 in total. In a case where the debtor has fewer than 12 creditors, one creditor may initiate an involuntary petition, but the creditor must be owed at least $10,775.
The debtor may resist the involuntary petition by filing an opposition and demonstrating that it is generally paying its debts as they become due. In a case where the court dismisses an involuntary petition, it may grant a judgment against the petitioning creditors for the costs and attorney’s fees incurred by the debtor and for compensatory damages caused by the filing. If an involuntary bankruptcy was brought in bad faith, the court may also assess punitive damages.