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Bankruptcies can be imposed involuntarily against individuals and businesses

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I keep my house if I file bankruptcy?”


Most times a bankruptcy is commenced when a debtor drowning in debt declares oneself bankrupt. In rare cases, however, a bankruptcy can be imposed upon a debtor.

Home Auction Sign Charlotte Debt Lawyer North Carolina Chapter 7 AttorneyThat is exactly what happened in a recent case in Charlotte, North Carolina.

In that case, the debtor in bankruptcy—a company—was declared bankrupt involuntarily by its creditors when the company became insolvent and unable to pay its obligations. At the direction of the United States Bankruptcy Court, the trustee overseeing the case marshaled the debtor’s assets—including three parcels of commercial real estate.

The trustee then proposed a sale of the properties in order to raise funds to pay off the debtor’s creditors in bankruptcy. United States Bankruptcy Judge Laura Beyer approved the sale of the three properties to satisfy the debts of creditors.  Ultimately the court will oversee the sale of the property pursuant to Section 363 of Chapter 11 of the United States Code. Title to the properties will pass to the buyer or buyers “free and clear” of any potential liens or claims.

To be clear: the debtor did not ask to be declared bankrupt, nor did it want its property sold to pay debts.

The case is a classic example of an involuntary bankruptcy. Once uncommon, involuntary bankruptcies are being used more often as creditors become more aggressive about ways to collect on debts. An involuntary bankruptcy allows a petitioning group of three or more creditors to forcibly “bankrupt” a debtor. The creditors hope a U.S. Bankruptcy Court will install a trustee to stand in the shoes of the debtor and get those creditors paid.  In the recent case in Charlotte, the trustee was empowered by the Court to sell a company’s assets, namely its real estate.

That case involved a company, but it should be noted that individuals can be subject to an involuntary bankruptcy as well as businesses. If the individual or business has fewer than twelve creditors, then just one legitimate creditor can petition the U.S. Bankruptcy Court to involuntarily bankrupt that debtor.

Several safeguards protect debtors from being wrongfully placed into involuntary bankruptcy.  For instance, the creditor’s debt must not be in bona fide dispute; meaning there must be no question that the debtor owes the debt. If a debtor is improperly subjected to involuntary bankruptcy, he, she or it may be entitled to an award of costs and attorney’s fees and can dial back negative credit reporting.  Lastly, a Bankruptcy Court may require a petitioning creditor to post a bond as security for the costs of an involuntary bankruptcy, which may cause creditors considering filing involuntary petitions to ensure that the same hold merit.

If you find yourself needing the services of an experienced Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.







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