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Involuntary Bankruptcy: the Pros and Cons

Originally published: February 2012


What You Need to Know Before Filing an Involuntary Bankruptcy Petition Against Your U.S. Debtor

Under the U.S. Federal Bankruptcy Code Title 11, creditors may file an involuntary petition for Chapter 7 or Chapter 11 against any debtor entity excluding banks, credit unions, insurance companies, farmsteads and non-profit organizations.

At first glance, this may appear an attractive option once you've exhausted your standard arsenal of collection tools to no effect. While the threat or actual filing of a petition for involuntary bankruptcy may help in recovering at least some of your money, you shouldn't be too quick to go down this path. There are a number of pitfalls within the law you need to be aware of. These are concerning enough to make this action a creditor’s last resort.