Can Creditors Force My Business Into Bankruptcy?
Many people dream of owning their own business, but it is not easy. There is a lot of stress involved as an entrepreneur works constantly to make money. When that does not happen, debt begins to accumulate. Over time, you might have hundreds of thousands of dollars in debt.
When this happens, a business owner may decide on their own to file for bankruptcy. This is called voluntary bankruptcy. There is also an option called involuntary bankruptcy, but as the name implies, it is done involuntarily. You do not file for it; a creditor does.
You may not be aware of that, but yes, a creditor can force your business into bankruptcy. It is a rare occurrence, but if you have a high amount of unmet debt, a creditor can force you into it.
If a creditor thinks they will not get paid if bankruptcy proceedings do not take place, and they think you are able to pay your debts but are choosing not to for some reason, then they can request an involuntary bankruptcy under 11 U.S. Code § 303. However, there is a process involved, and it starts with seeking a legal requirement to force a debtor to pay their debts.
A petition for involuntary bankruptcy can only be filed under Chapters 7 or 11 of the U.S. Bankruptcy Code. A petitioning creditor must petition the court to initiate the proceedings. The petition sets forth requirements for the creditor to satisfy and can be filed against an individual or business. The debtor can file an objection to force a case, but a bankruptcy court makes the final decision on whether to proceed or dismiss the case.
What are the Requirements?
Involuntary bankruptcy is not available against all business owners. It cannot be filed under Chapter 12, which pertains to family farmers or family fishermen with regular income. Chapter 13 is also exempt. This type of bankruptcy is known as a “wage earner’s plan” and is available to those with regular income. In addition, involuntary bankruptcies cannot be filed against banks, insurance companies, credit unions, and nonprofit organizations.
If there are fewer than 12 creditors, then one creditor can file if they hold at least $18,600 in unsecured debt. If there are 12 or more creditors, then at least three creditors must file, and they must have at least $18,600 in combined, unsecured debt.
Contact Us Today
If you have a significant amount of debt and creditors are worried about getting paid back, then they can force you into bankruptcy. It is not common, but it can happen.
If you own a business and are worried about bankruptcy, West Palm Beach bankruptcy attorney Brian K. McMahon, P.A., can answer your questions. Let me put my 30+ years of experience to work for you. To schedule a consultation, fill out the online form or call (561) 658-1789. We serve the West Palm Beach, Boca Raton, Port St. Lucie, and South Florida areas.