Patrick O'Malley

Involuntary Bankruptcy

It is extremely unlikely that you would ever need to worry about involuntary bankruptcy. The vast majority of bankruptcy cases are eagerly pursued by the debtor, because the debtor wants to gain the benefits of bankruptcy. An involuntary bankruptcy is relevant only when a creditor believes they will benefit more from forcing the debtor into bankruptcy court, than by collecting on the debt in some other way. This is very rare. Only in a narrow set of circumstances does involuntary bankruptcy simultaneously make fiscal sense, as well as being legally available to the creditor.

The basics

If a creditor has a security interest in property, it is almost always more efficient to just take ownership of the property through foreclosure, repossession, or similar less-expensive avenues. Thus, involuntary bankruptcy is normally only of interest to unsecured creditors. The creditor assesses the facts and law to determine if their recovery is better in Chapter 7 or 11—the other bankruptcy chapters are not available. The creditor must convince the court of both the necessity and justifications for the creditor to act on behalf of the debtor, namely because the debtor has failed to do so. This is a very high hurdle to clear. But, if the creditor convinces the judge, then the case proceeds normally, as a Chapter 7 or 11.

Many limitations exist

There are many additional requirements that must exist before creditors can force an involuntary filing. Just a few pitfalls include: If the amount of the debt isn’t large enough. If there are too many creditors, or even if there are too few. If an insufficient number of creditors are willing to participate in the expensive legal action. If the total amount of the debt is not yet determined, or it is contingent on some future event. These logistical pitfalls make it exceedingly unlikely that a creditor will be able to satisfy the requirements.

Contact us for help

Business Bankruptcy Solutions helps Coloradoans lower their debts, renegotiate contracts and save their businesses. Call 720-491-1469 or email now to schedule a free consultation. We will discuss the problems facing both your business and personal finances and the tools we can use to achieve your goals. We draw upon decades of legal and business experience to provide you with actionable solutions. With BBS on board, we’ll help you weather this storm.