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Voluntary Vs. Forced Bankruptcy For Businesses

June 11, 2021

Some businesses say they are “forced” to file bankruptcy or they “had no other choice.” However, in most cases, this is a voluntary bankruptcy filing. Learn more about voluntary bankruptcy and business bankruptcy forced by creditors.

Voluntary Bankruptcy

Even if a business does not want to file bankruptcy, the owner or the board of directors can decide that bankruptcy is the best or only financially sound decision. Yet, this is still a voluntary bankruptcy. Certainly it feels forced or like the business owner is backed into a corner with no way out. However, filing for bankruptcy in this way is technically voluntary.

Involuntary Bankruptcy

In very few cases, creditors can bring about bankruptcy for a business. While a voluntary bankruptcy puts a company directly into bankruptcy, an involuntary bankruptcy is like a “complaint” where creditors suggest to the court that the business should file. The business can continue its usual operations.

To achieve an involuntary bankruptcy, certain criteria must be met. This includes:

If a company has less than 12 creditors — only one creditor is needed to file the involuntary bankruptcy petition.

If a company has more than 12 creditors — three or more creditors are needed to file the petition

  • The creditors’ claims must not be subject to a bona fide dispute or contingent as to liability

  • Qualifying claims against the business must total at least $14,425 if unsecured

  • Secured claims must total $14,425 above and beyond the value of liens

If the company disputes the involuntary bankruptcy petition, further criteria must be met, including but not limited to:

  • Appointing a custodian to take control over company assets within the last 120 days

  • Consecutively not paying debts as they become due

When To Contact An Attorney

If your business is struggling financially, bankruptcy may be on the horizon for you. In most cases, bankruptcy can be helpful for a company. However, if your creditors are attempting to file an involuntary bankruptcy against your business, you’ll want to investigate their claim and make sure they have the grounds to do so.

At the Law Firm of Joel M. Aresty, P.A., we have the resources and skills to assist you with fighting an involuntary bankruptcy petition. Contact us today for a consultation at 1-855-DOC-LAWS.