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Voluntary vs. involuntary bankruptcy- what’s the difference?

When you think of bankruptcy, you probably imagine an indebted person or business owner visiting a bankruptcy attorney’s office and filing a chapter that is best suited to their circumstances. While this is the most common way to file, it’s not the only one. There are actually two types of bankruptcy in New York: voluntary and involuntary.

Voluntary Bankruptcy

Voluntary bankruptcy is exactly what its name suggests. You willingly file to obtain relief from your debts and stop creditor collection actions such as wage garnishment, freezing of your bank account, and foreclosure. After you fulfill the terms of the chapter you filed, you receive a discharge from most unsecured debt.

Involuntary Bankruptcy

When a bankruptcy is involuntary, one or more of your creditors files a petition for bankruptcy against you. This action is relatively rare, and a single creditor must meet certain conditions to initiate an involuntary action, namely:

  • You have no more than 12 unsecured creditors
  • Their unsecured claim against you is at least $15,775

Three or more of your creditors can file an involuntary case against you if:

  • You have 12 or more unsecured creditors
  • Their unsecured claims total at least $15,775

In addition:

  • They can only file a Chapter 7 or 11 case against you, not Chapter 13
  • If you are married, then they cannot file a joint bankruptcy against you and your spouse
  • If you are a family fisherman or farmer, then they cannot file against you at all
  • Not all creditors can force you into bankruptcy. For example, they cannot be your employer, an insider, or the recipient of a money or property transfer that has been undone.

Your creditors will generally only request your involuntary bankruptcy if they believe there is no other way to collect their money from you.

What can you do if a creditor files a petition for involuntary bankruptcy against you?

If you are the subject of one of the few involuntary bankruptcies filed each year in New York, then there are some options available to you. You can:

  • Engage an attorney to help you contest the bankruptcy
  • Continue with the bankruptcy. This option makes sense if you have few assets to lose in a Chapter 7 and you are struggling with debt. If you do have assets that you don’t want to be liquidated, then a New York bankruptcy attorney can help you convert your case to a Chapter 13, which allows you to repay your debts over three to five years and keep nonexempt property.

If you are planning to file for bankruptcy or facing an involuntary action, then contact Jayson Lutzky. He is a Bronx bankruptcy attorney who can advise you on the best course of action for your situation. Mr. Lutzky offers free initial in-office consultations. Call 718-329-9500 to set up an appointment.

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