A creditor can start an involuntary bankruptcy case in New York City against a debtor (either a person or business) who owes the creditor money. An involuntary bankruptcy case is a bankruptcy case started by creditors. If a debtor has more than 12 creditors who are owed at least $13,475 as a group, those creditors can file an involuntary bankruptcy case against the debtor if they can establish that the debtor is not paying his, her or its debts as they become due. Also the debts must be fixed and liquidated in amount and not contingent (meaning that nothing else has to happen to fix liability – such as a judgment in a personal injury case resulting from an accident). In addition, the claims cannot be subject to bona fide dispute as to liability or amount — if there is a valid and legitimate dispute about the debt it can’t be the basis for an involuntary bankruptcy case.
If a debtor has less than 12 creditors in all, one petitioning creditor owed at least $13,475 can commence an involuntary bankruptcy petition against the debtor.
Usually one creditor alone can’t file an involuntary bankruptcy against a debtor, since a debtor, particularly a business debtor, will often have more than 12 creditors. In addition, it is usually a good idea to have more than 3 petitioning creditors so that if the validity of any creditor’s claim is challenged, such as that the claim is subject to bona fide dispute, then there are still additional petitioning creditors with valid claims.
Typically prior to pursuing an involuntary bankruptcy on behalf of a client we would try to vigorously enforce the claim through litigation, or enforce the judgment through execution and levy. This is a better means of recovery than bankruptcy.
In addition, there is considerable risk associated with an involuntary bankruptcy case for the petitioning creditors. A petitioning creditor may be held liable for costs and attorneys’ fees and damages if an involuntary bankruptcy petition is dismissed, so it only makes sense to file an involuntary petition if it is very likely to be successful (and not for the purpose of trying to obtain leverage in collections).
Starr & Starr, PLLC handles involuntary bankruptcy cases in New York on behalf of petitioning creditors in appropriate circumstances. Please feel free to contact us at 888-867-8165 for further information or to schedule a consultation.