When is time to start Involuntary Bankruptcy?

Here are some situations that tell you when is the time to start the petition for involuntary bankruptcy against a debtor:


  • The debtor is not paying debts, but has assets from which those debts can be paid, this is the most common situation for involuntary bankruptcy.
  • The debtor is only paying debts that have been guaranteed by its principals, or is only paying debts owed to other “insiders”.
  • The debtor is transferring assets to a creditor for forgiveness of a debt, leaving insufficient funds to pay to other creditors.
  • The business also can be pushed into bankruptcy if the business is successful and has the ability to pay but is refusing to pay.
  • The debtor is transferring assets to a related company or a successor company.
  • Wealthy individuals that have considerable assets, but also debts can be pushed into involuntary bankruptcy.
  • Unsecured creditors suspect fraud on the part of a company.
  • If multiple creditors are chasing a limited pool of assets from a debtor, filing the involuntary bankruptcy petition will result in equality of distribution among those creditors, rather than a race to the assets, which a creditor may lose

So it is always wise to first research the situation and then to start a petition, you don’t want to end up paying court fees and not getting your money for example, if an individual were pushed into bankruptcy, the creditors would be in a worse position than they were in before, because if the debtor has no assets, the creditors have no ability to receive payment, and the bankruptcy case prevents them from attempting to collect.

Involuntary Bankruptcy Requirements

Also, if you finally decide to go to an involuntary bankruptcy, there are some requirements that you need to be aware of and to take into consideration.

  • Number of creditors. The Bankruptcy law specifies the minimum number of creditors and amount of their claims.
  • The amount of unsecured claims must be more than $14.425
  • If a business has more than 12 creditors the bankruptcy petition requires three or more creditors agree to file a petition.
  • If a company has fewer than 12 creditors, it only takes one creditor to file an involuntary petition.
  • Additional creditors can join the petition later, and if only one creditor files and it turns out that the company has more than 12 creditors, the bankruptcy court will give other creditors an opportunity to join.
  • The debtor is generally not paying its debts as they become due, unless such debts are the subject of a bona fide dispute as to liability or amount.
  • Petitioning creditors are disgruntled claim holders with whom the debtor is in litigation.
  • The bankruptcy may result in further barriers to collecting the debt as the filing triggers an automatic stay, which precludes creditors from taking any other course of action to collect.
  • Creditors cannot use the involuntary bankruptcy procedure as a litigation tactic.

Facing an involuntary bankruptcy

If in some case a creditor starts an involuntary bankruptcy against an individual, the debtor has several options to choose from.

  • Continue with the case. Automatically continue with chapter 7 as the best option.
  • Convert from chapter 7 to chapter 13 if you think that Chapter 13 would be better for your situation.
  • Contest the involuntary bankruptcy.

If you are faced with an involuntary bankruptcy, the best you can do is consult immediately with an experienced lawyer and get some advice and help. Depending on the situation, maybe it won`t be too late to stop the involuntary bankruptcy. Anyway consulting with a lawyer can help you to manage the case and get the best outcome possible.


Marc Aaron Goldbach attorney at Goldbach Law Group handles all sorts of Bankruptcy cases and he is ranked as one of the premier Bankruptcy Lawyer in Long Beach areas. He can also be reached at (562) 696-0582.

You can follow Marc on Avvo, where he has explained about Bankruptcy’s Do’s and Don’ts or on Google+ to seek his advice.

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