Involuntary Bankruptcy Law and Legal Definition

Involuntary bankruptcy refers to a bankruptcy case commenced by the debtor's creditors or, if the debtor is a partnership, by fewer than all the general partners.

Under the Federal Bankruptcy Code, 11 USCS § 303 speaks about Involuntary cases. Involuntary cases can be commenced only under chapter 7 or 11 of the code against a person, except a farmer, family farmer, or a corporation that is not a moneyed, business, or commercial corporation, that may be a debtor under the chapter under which such case is commenced. An involuntary case against a person can be commenced by the filing a petition in the bankruptcy court under chapter 7 or 11 by three or more entities. In case of a partnership it can be filed by fewer than all of the general partners in such partnership.

If the petition filed against an individual is false or contains any materially false, fictitious, or fraudulent statement the court may dismiss such petition and upon the motion of the debtor, seal all the records of the court relating to such petition, and all references to such petition. The court can also enter an order prohibiting all consumer reporting agencies from making any consumer report that contains any information relating to such petition or to the case commenced by the filing of such petition.