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Involuntary Bankruptcy: Effective Collection Tool

On Behalf of | May 12, 2014 | Involuntary Bankruptcy

Involuntary bankruptcy can be a very useful collection technique, but definitely not one to use lightly. The bankruptcy code provides that a single creditor can put a debtor in bankruptcy who has less than 12 creditors (excluding insiders) and is owed at least $10,000.00. If the debtor has more than 12 creditors, then 3 creditors may join together to file the petition as long as the collaborative debt is also at least $10,000.00.

Once the involuntary petition is filed and the bankruptcy case is open, the debtor’s assets may be brought into the estate to pay off its creditors. Most persons and entities would prefer not to be in bankruptcy resulting in a quick resolution to collect your debt. Even if no resolution occurs, however, the bankruptcy case is usual more effective than state law in procuring assets.  Further, the discovery scope in bankruptcy is much wider than state court.  It is much easier to obtain banking and financial information about the debtor through the bankruptcy court.

The caveat is that bankruptcy courts often look unfavorably on involuntary petitions because as with everything else, it has been abused over the years. Therefore, before moving forward, a creditor should do the necessary investigations to ensure the debtor is subject to be put into involuntary bankruptcy. For more information, feel free to contact my firm.