A fellow attorney, but not a bankruptcy attorney, recently asked me this question because he had a business client who wanted to use an involuntary bankruptcy filing to collect money from a judgment debtor. To answer my colleague’s question we need a little background. Let’s start with the concept of a voluntary bankruptcy.
I. Voluntary Bankruptcy
Almost all bankruptcies filed today are voluntary bankruptcies. Regardless of the underlying chapter at the heart of the bankruptcy, a voluntary bankruptcy is filed either under 11 U.S.C. § 301(a), or § 302(a). § 301(a) provides (with emphasis added):
A voluntary case under a chapter of this title is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter.
The phrase, “by an entity that may be a debtor under such chapter,” appears because a business can file under § 301(a). However, if the debtor is not a business, then the entity in question is one individual. Section 301(a) cannot be used by a married couple. Why? The answer is found in § 302(a) (with emphasis added):
A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse.
Notice the common thread in these two sections: it is the debtor who files the bankruptcy petition. The reason such bankruptcies are called voluntary bankruptcies is that the debtor voluntarily enters into bankruptcy. Contrast this with the statutory language authorizing involuntary bankruptcies.
Continue Reading Involuntary Bankruptcy: What Is It, And Why Would Anyone File One?