What is involuntary bankruptcy?

Involuntary bankruptcy is specifically defined as a legal process initiated by creditors rather than by the debtor themselves. This occurs when creditors file a petition against a debtor who may not voluntarily seek bankruptcy protection, usually because they are unable to pay their debts. The creditors must meet certain criteria, such as demonstrating that the debtor is not paying debts as they become due. When this type of bankruptcy is filed, the court evaluates the situation, and if the case is established, the court can impose bankruptcy proceedings on the debtor. This process aims to provide a means for creditors to recover some of the money owed to them, highlighting the procedure's focus on creditor rights when a debtor is unable to fulfill their financial obligations.

In contrast, other choices describe scenarios that do not accurately characterize involuntary bankruptcy. For instance, voluntary bankruptcy indicates a choice made by an individual or business to declare bankruptcy, while the other options misrepresent the scope and application of bankruptcy laws.