7 Requirements for Creditors to File Involuntary Bankruptcy in Las Vegas?

In the vast majority of instances, it’s the debtors who hire a Las Vegas bankruptcy lawyer and file to obtain their fresh start, but in rare instances, creditors will actually force debtors into bankruptcy court. Section 303 of the bankruptcy code [http://www.law.cornell.edu/uscode/text/11/303] outlines the rules. Involuntary bankruptcy can only be filed in Chapter 7 or 11, and not against farmers, ranchers, and nonprofits. Involuntary bankruptcy is considered a last resort for creditors and is only advisable in circumstances in which obtaining a judgment from state court for breach is inadvisable. Furthermore, there are only seven requiresment the creditors must meet to force a debtor into bankruptcy.

(1)  The debtor must owe the creditors at least $10,000.
(2)  Three of twelve or more creditors must file together.
(3)  If there are fewer than twelve creditors, only one who is owed $10,000 is necessary to file.
(4)  None of the creditors filing the petition may have bona fide (good faith) disputes with the debtor as to the liability or the amount of debt in question.
(5)  None of the filing creditors can be “insiders, employees, or anyone getting preferences.”
(6)  All the filing creditors’ loans must be unsecured.
(7)  None of the loans must be “contingent,” meaning they can’t stem from a lawsuit that hasn’t been won by the creditor yet.

The debtor has 20 days to file an objection to the involuntary bankruptcy, but if he or she doesn’t file, the case proceeds. Otherwise, the parties will argue their cases in a hearing before a bankruptcy judge, who will side with the creditors only if the debtor isn’t paying his or her debts as they become due and if the creditors filed in good faith. If the bankruptcy court believes the creditors filed the petition in bad faith the debtor might be awarded punitive damages.

Creditors’ two principal benefits to filing an involuntary bankruptcy are to have a Trustee appointed to the debtor’s estate to see search the accounts for wrongdoing and to claim administrative costs for initiating the process. The latter prevents free-riding by the other creditors.

Generally, involuntary bankruptcies don’t happen to everyday debtors, and the point of the process is to protect the creditors as a class from debtors’ misbehavior. It is NOT a mechanism for one or two creditors to beat up on a debtor.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.

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