involuntary bankruptcy

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Involuntary bankruptcy

The process where creditors petition the court to begin bankruptcy proceedings on a debtor. Also see Voluntary bankruptcy.

Involuntary Bankruptcy

A situation in which a creditor may force a debtor into bankruptcy. A creditor may file for involuntary bankruptcy if the debtor has become severely and consistently delinquent or if a custodian has been appointed for the debtor in the previous six months. After the petition is filed, the debtor usually has 20 days in which to contest it. If the debtor objects to involuntary bankruptcy, he/she must show either that payments are not as delinquent as claimed or that he/she is taking steps to restore solvency. If the debtor does not show this, the bankruptcy court can force liquidation to repay the creditor(s).

involuntary bankruptcy

Bankruptcy that is forced by creditors instead of being initiated by the firm or individual. Compare voluntary bankruptcy. See also Chapter 7, Chapter 11.
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