Whatever industry you are in, your success as a business owner depends on multiple factors, many of which are wholly or partly out of your control.
It is no surprise that many businesses end up heavily in debt and owners are left wondering whether it is better to file for bankruptcy or to continue trying to fight it out a little longer. In some cases, that choice is taken out of their hands, and bankruptcy is forced upon them by someone else.
The term for this forced filing is involuntary bankruptcy. Not just anyone can make this occur. They need to be a creditor, and they can only do it in certain circumstances.
An alleged ability to pay your debts
Creditors can ask a court to impose bankruptcy on you if they have reason to believe that you are able to pay your debts to them but are opting not to. The court can impose either a Chapter 7 or a Chapter 11 bankruptcy if it agrees.
Note that some companies and organizations cannot be subject to involuntary bankruptcy. They include insurers, banks, non-profits and farmers.
If you are in debt to 12 or more creditors, then at least three of them will have to join together to bring the filing. Where there are fewer than 12, a court can proceed with a request from just one of them.
The minimum debt required for a creditor or a group of creditors to pursue this is currently $21,050. They’ll have to convince the court that there is no valid dispute over the amount owed and prove that you are not paying as you should be.
If you face this situation, it is important to seek more information on your options. One may be to file voluntarily to maintain more control over the situation, and another may be to contest the need for bankruptcy or the validity of their claim(s). Having experienced legal guidance can help you determine what’s best for your business.