Involuntary Bankruptcy

Petition by a sufficient number of creditors, claiming a debtor has committed an Act of Bankruptcy or is not paying debts on time, asking a bankruptcy court to distribute assets to pay obligations, also called a creditor's petition. An involuntary bankruptcy petition can be filed by as few as one creditor; but if the debtor has 12 or more creditors, signatures of at least three creditors are needed. Creditors can file petitions under any chapter of the code: a Chapter 7 Liquidation of the debtor's assets, a Reorganization under Chapter 11, or a Chapter 13 repayment plan. Creditors' petitions are allowed against any business or individual except nonprofit organizations and farmers. Once a petition has been accepted by the court, it is handled as if it were a Voluntary Bankruptcy filed by the debtor. See also Bankruptcy; Priority of Lien.

Financial failure that is legally and formally declared by petition of the debtor's creditors, and not by the debtor. See also Chapter 11; Chapter 7.