Can Creditors Force My Company Into Bankruptcy?

September 21st, 2010 by Reed Allmand

Can Creditors Force My Company Into Bankruptcy?Creditors have the power to force a company into bankruptcy, but only under certain conditions.  Here’s what you need to know:

  1. A company can be forced into a bankruptcy if they have failed to make payments on debts.  Creditors usually don’t begin to push a company into bankruptcy until a significant number of payments are missed.
  2. Creditors can only force a company into a Chapter 7 bankruptcy or Chapter 11 bankruptcy. If a creditor successfully files an involuntary Chapter 7 bankruptcy on a company debtor, the company’s assets will be liquidated and the proceeds will be used to pay all eligible creditors.  If the creditor forces a company into Chapter 11 bankruptcy, the debts will be restructured.  In other words, once the involuntary petition is filed and approved the bankruptcy process is basically the same as a voluntary bankruptcy.
  3. Getting an involuntary bankruptcy petition filed and approved is no easy feat.  If a debtor company has less than 12 creditors, only one creditor is needed to file for the involuntary petition.  But if the debtor company has more than 12 creditors, at least 3 creditors must be willing to file an involuntary bankruptcy petition against a company.   Any creditor that wants to file an involuntary bankruptcy petition against a company must first have a judgment against that company that is not in dispute.  If a company debtor is challenging the validity of a debt, that creditor cannot file an involuntary bankruptcy petition.
  4. Finally, it is not enough that a debtor company is failing to pay a few of their bills.  The company must be literally insolvent and not paying most or all of their bills before a creditor can successfully file an involuntary bankruptcy against the company.

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About Reed Allmand

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Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."

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