subject: The Consequences Of Involuntary Bankruptcy [print this page] Bankruptcy can be filed against a debtor by one or more creditors for failure to repay debts, or for failing to respond to requests to do so. This is done in a bankruptcy court. A petition is filled with the clerk at the court and summons issued to the debtor. Following this, a debtor is given twenty days to file their objections to the case. If the debtor files objections then the case goes to trial. Usually, creditors file for such cases when they feel that the debtor is about to dispose of his assets, or is about to file for bankruptcy himself.
Filling such a case is one way that creditors use to get part, or all of their money. However, you cannot file for such a case if all other available options have not been tried and exhausted. In addition, the total outstanding amount owed to the creditors must be above that stipulated by the courts. Once in court, the case can be dismissed if the debtor proves that he has been consistent in making payments, and that they are willing to make the current payment. Most courts rule in favor of the company or person facing involuntary bankruptcy. In such cases, the creditor is forced to meet the legal fees for the debtor in addition to all other legal costs incurred during the trial.
In cases where the court rules in favor of the creditor, then several actions can be considered. These actions include; foreclosure, liquidation, re-organization or the appointment of a trustee to investigate the running of the company. The trustee reports on fraud, mismanagement and other irregularities found. In some cases, the trustee may be required to manage the company for a stipulated period of time.
The consequences of a bankruptcy case affect both the debtor and the creditor. When an involuntary case is filled, the court may grant an automatic stay. This stay is usually for an indefinite period of time. The debtor continues with his business but the creditor cannot take further action to receive payment during this time. Once a company has gone through such a case, it affects the future credit for you or your company. This is because creditors will view you as a risk to deal with. A lot of time is also wasted during the case proceedings by both parties. One should only proceed with such cases when they are sure that they have a strong case, and are guaranteed that the court will rule in their favor.
