Involuntary Bankruptcy

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What Is an Involuntary Bankruptcy?

Involuntary Bankruptcy

Should a business find itself in serious financial trouble with no projections showing it has a solution, its creditors have the right to “force” the company into bankruptcy. If a debtor has 12 or more creditors, at least three creditors, who have unsecured claims which total $10,000 or more, can file a petition to force a Chapter 7 or 11 bankruptcy. If the company has less than 12 creditors, one creditor can precipitate the petition if owed at least $10,000. However, in both cases, the monies owed must not be the subject of a dispute. The debt owed must be agreed to on the part of both parties.

Creditors will sometimes take this action if they see the debtor dissipating company assets that might be used to pay outstanding debts. Should creditors take this action and have the ability to prove that some company assets were diverted to other entities in the 90 days previous to filing the action, some or all of those assets may be ordered returned to company ownership and become part of the bankruptcy proceeding.



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