Creditors of a company facing severe financial issues may consider “forcing” the company into bankruptcy. Often a business appears to be forced into filing for bankruptcy protection as a result of creditor’s actions. For example, to seek shelter from foreclosure proceedings or other lawsuits. However, this is not what is meant by involuntary bankruptcy because the company made the final decision to file the bankruptcy case.
An involuntary bankruptcy occurs when the company does not consent to the filing. Section 303 of the Bankruptcy Code sets forth the requirements that must be met for an involuntary bankruptcy. Below is a general summary:
- If the company has 12 or more creditors, 3 or more creditors whose claims in the aggregate total at least $14,425, must sign the petition. The $14,425 amount is adjusted every three years, with the next adjustment due in April 2013.
- If the company has less than 12 creditors, only 1 qualifying creditor is needed
- If the company files a timely objection to the involuntary filing, in order for the involuntary bankruptcy to proceed, it must also
- generally not be paying its undisputed debts as they become due, OR
- have a custodian appointed within the past 120 days to take control of substantially all of its assets.
Creditors are often reluctant to pursue forcing a bankruptcy filing because it exposes the creditor to liability for costs, attorney’s fees, damages and possibly punitive damages. Involuntary bankruptcy is typically used circumstances exist.
If you are interested in learning more about creditor’s rights in bankruptcy, including pursuing an involuntary bankruptcy, contact Windtberg & Zdancewicz today.
The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance, or are interested in learning more, please contact us at (480) 584-5660.