As a bankruptcy lawyer from The Law Offices of Ronald I. Chorches understands, financially distressed companies may reach a point where bankruptcy is the best path forward. When most business owners and managers consider filing for bankruptcy protection, they think about making a long, hard choice after carefully evaluating the needs of their company. However, in some cases, aggressive creditors can actually force a business, involuntarily, into filing for bankruptcy. In this post, we will explain what business owners need to know about involuntary bankruptcy.
Involuntary Bankruptcy: Chapter 7 and Chapter 11
When certain conditions are met, the United States bankruptcy code allows creditors to file an involuntary bankruptcy petition on behalf of a business. In these cases, creditors can only push a company into either Chapter 7 bankruptcy or Chapter 11 bankruptcy. For companies that have less than 12 creditors, one creditor can petition to do this alone. On the other hand, when a company has at least 12 total creditors, then a minimum of three of the creditors must agree to join the involuntary bankruptcy petition.
Why Would a Creditor File for Involuntary Bankruptcy?
Involuntary bankruptcy is a potential debt collection tool. When a bankruptcy petition is successfully filed, it triggers an automatic stay. The automatic stay puts an immediate stop to almost all collection efforts. Certain creditors may want an automatic stay to be put in place to keep a company from transferring away all of its remaining assets, either to another creditor or to a related firm.
What Can a Business Do to Prevent an Involuntary Bankruptcy?
If a creditor or group of creditors files an involuntary bankruptcy petition on behalf of your business, you have two options.
- Accept the filing: This means the bankruptcy case will move forward.
- Object to the filing: This sets up a legal fight over the bankruptcy.
Should your company object to an involuntary bankruptcy filing, you need to get an experienced attorney by your side as soon as possible. At this point, your case will be set to go before a bankruptcy judge, who will hear both sides and determine whether or not your business is legally required to file for bankruptcy protection. Your attorney will be able to review the specific circumstances of your case and determine the best way to protect the rights and interests of your firm.
Contact a Bankruptcy Law Firm Today
If your business is going through a difficult time financially, you may be considering bankruptcy or you may be feeling the stress as creditors attempt to take legal action to force you to file. Whatever the situation you are in, a bankruptcy attorney can evaluate your situation and determine what legal options will be the best for your situation.
Call an experienced attorney for help with your case today.