Involuntary Bankruptcy Cases – Tips For Petitioners

Voluntary bankruptcy cases are the most common of the lot. Still, there have been instances when a petition is filed involuntarily. Though it is rare, but such cases do occur. If you are one of those petitioners who occasionally practice in this field, you may find the following tips valuable.

Involuntary Cases Are Permitted Only Under Chapter 11 Or Chapter 7

It is very important for you to understand that you cannot file involuntary petition under chapter 13, 12, or 9 of the bankruptcy code because such things are permitted only under two chapters – 7 and 11. What is more, you are also not allowed to file such cases against a non-profit organization or a farmer. If your only objective is to liquidate the debtor’s assets and properties so that you could get your money back, you had better file under chapter 7. On the other hand, if you deal in some kind of business with the debtor and you want him or her to be rehabilitated, filing under chapter 11 should be a preferred choice for you. You must note that the cost of filing for bankruptcy cases under chapter 11 is higher as compared to filing under chapter 7.

A Trustee Can Be Appointed Even Before The Order For Relief

You will be glad to know that the laws allow you to request the court to appoint a trustee even before the order for relief has been entered. You can settle for such options if the debtor is not responding to your petition and is instead vigorously contesting the same. In such cases, he or she may be ousted from possession of their properties. In chapter 7 bankruptcy cases, the petitioner is permitted for such acts if the objective is to prevent the loss of estate property. On the other hand, if you have filed involuntarily under chapter 11, the court may order for such things if it finds it in the best interests of estate, equity security holders, and creditors. The court can also appoint a trustee on the basis of the petitioner’s request before the order for relief in case of gross mismanagement, incompetence, dishonesty, and fraud.

The Court May Restrict The Debtor’s Power To Act

On your request, the bankruptcy court can also limit the debtor’s power to act. Always remember that asking to appoint a trustee before the order for relief may not be a good remedy for you. However, you still have ways to restrict the power of the debtor. The power to act includes the liberty of the debtors to act freely and do whatever he or she wants as if nothing has happened. If you feel that the debtor’s freedom is adversely affecting your interests, the laws for such bankruptcy cases give you the right to request the court to prohibit the debtor from engaging in a particular activity.