Bankruptcy

Involuntary Bankruptcy

By info

Many Creditors have found themselves in the position of being owed a significant amount of money but having no way of collecting that money.  In some situations though, the Creditor may be privy to information that the reason they are not being paid is not due to a lack of funds by the Consumer or business, but rather due to the fact that the funds are being diverted to other parties or even being embezzled.  If this is happening, what options do Creditors have?  One option is certainly to commence a case in state court for breach of contract, which will then require discovery to enforce a judgment.  However, there is another option which is underutilized; a Creditor can petition the Court to force the Debtor into a bankruptcy. The purpose of an involuntary bankruptcy is to prevent and protect Creditors from unfair activities. A direct result of forcing an involuntary bankruptcy is the ability to recover payments or wrongful transfer by the Debtor.  The filing of involuntary bankruptcy allows the avoidance of time restrictions on three important elements: Inside transfers prior to filing within two years, fraudulent transfers made within one year prior to filing and non-insider preferences made within 90 days prior to filing are protected.

            Forcing an involuntary bankruptcy has two main benefits. First, filing a bankruptcy presents the opportunity to appoint a Trustee over the case. 11 U.S.C. § 303 As a result, the Debtor?s actions can be thoroughly examined and the Debtor can be held accountable.  A secondary benefit for the Creditors is a claim for ?actual, necessary expenses? acquired through the time of ordered relief. This event occurs when the court accepts the petition.  The Creditors involved have the opportunity to submit this claim that includes Attorney?s and Accountant?s fees, cost for preparation for petition, and filing the petition. Also, the claim can involve any litigation necessary for petition. Under the bankruptcy law, administrative claims (11 U.S.C. § 507(a) (1) are a first priority and are finically compensated before all other claims.

            An individual or corporation as a Debtor becomes a likely candidate for an involuntary bankruptcy for two activities. First, the Debtor is missing several payments or regularly missing payments. Secondary, the Debtor can become subject if a custodian was appointed or had taken possession of the debtor?s property before the petition within 120 days.

            There are five necessary elements needed to force an involuntary bankruptcy. To file a petition, the debtor has to have at least three creditors our of twelve who are owed a minimum of $10,000 dollars together; If there are less than 12 creditors owed, only one creditor is necessary which is owed at least $10,000 dollars. The 12 creditors may not be insiders, employees or anyone getting preferences. The debts must not be dependent, meaning that they cannot be claims for a law suit yet to be matured. Additionally, the disputes must not be bona fide claims.  Bona fide cases are debts with ?good faith? to fulfill. Also, until such time as the bankruptcy case is discharged or dismissed, additional Creditors may also join a pending petition.

            The process of filing an involuntary bankruptcy begins with filing a petition and a summons with the clerk of the U.S. Bankruptcy Court. The Debtor has a 20-day time

Full post as published by Bankruptcy Articles & Blog on June 21, 2010 (boomark / email).