An involuntary bankruptcy occurs when three or more creditors join together to force a debtor into bankruptcy court jurisdiction. These involuntary petitions usually occur when the debtor has acted in a way that causes creditors concern that the debtor’s assets and value are rapidly depreciation, or has recently dropped. This may happen when, for example, a debtor transfers assets to insiders or preferred creditors leaving insufficient assets to pay creditors in full.
The following are the main threshold requirements to initiate an involuntary bankruptcy case:
- If the debtor has more than eleven creditors, three creditors can join together to file an involuntary bankruptcy petition.
- The debtor is generally not paying its debts as they become due.
- The three creditors must have noncontingent debts.
- The debts of the petitioning creditors must not be subject to a bona fide dispute.
- The aggregate amount of the unsecured claims of the petitioning creditors must be more than $14,425.
For more information on the topic of involuntary bankruptcy please see this article.
