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.


About Reed Allmand


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."

View all posts by Reed Allmand


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