What is an involuntary bankruptcy proceeding?

On Behalf of | Feb 9, 2021 | Commercial Collections |

As a creditor, you often face a difficult uphill battle when it comes to seizing the assets of a debtor. You may have to go through litigation first to prosecute the debtor’s claims. This alone costs a lot of time and money. You then need to locate the debtor’s assets for seizure. By this point, only a fraction of assets may remain. 

Instead of going through these difficulties, you have another potential option open to you. It is an involuntary bankruptcy petition. 

Filing your petition

Cornell Law school delves deeper into involuntary bankruptcy proceedings. You can commence with this process as the petitioning creditor who files for the bankruptcy. You can file the petition either against a business entity or an individual. Note that you may only file an involuntary petition as Chapter 11 or Chapter 7. 

What requirements must you satisfy?

You must also satisfy several requirements in the process. First, the debtor must owe more than $15,325 in debt. You must also show that the debtor has generally not paid their debts as they were due. You can file the petition as a single qualifying creditor. If the debtor has over 12 qualifying creditors, 3 or more of you may file the petition jointly. 

Note that after filing, the court may deem the petition invalid and dismiss it. In a worst case scenario, a judge may even determine that you made the petition in bad faith. It is important to keep these outcomes in mind and work to minimize the chance of them happening. This is why many creditors seek the aid of a legal professional during these difficult decisions. 

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