What does Voluntary Bankruptcy mean?
Debtors who file bankruptcy may do so voluntarily or involuntarily. A voluntary bankruptcy is a bankruptcy filed when a debtor or debtors decide on their own to make the bankruptcy filing decision. Any time a debtor files a voluntary bankruptcy, they are agreeing to potentially surrender all of their non-exempt assets to the bankruptcy estate for distribution to satisfy their debts.
Voluntary bankruptcy differs from involuntary bankruptcy. Involuntary bankruptcy allows the creditor to initiate bankruptcy for the debtor in an effort to seize their assets and use the proceeds to pay outstanding debts. If a creditor initiates the bankruptcy the debtor will be required to demonstrate why certain assets should not be sold.
Voluntary bankruptcy should be initiated only as a last financial resort. For example, it is not uncommon for debtors to file bankruptcy after a lengthy illness which generates high medical bills, an unexpected job loss or a divorce. Voluntary bankruptcy does, however, allow debtors to retain certain exempt assets which they can then use to start over.
Bankruptcy laws were created for the protection of both the debtor and the creditor. Debtors are required under bankruptcy law to be honest and forthright. Debtors should understand bankruptcy laws and avoid all fraudulent activities. If you have questions about bankruptcy, contact a bankruptcy lawyer for more information.