What is an involuntary bankruptcy petition?
When dissenting creditors do not accept an out-of-court proposal for reorganizing a business, they can team up and attempt to force the debtor into a bankruptcy proceeding, either a Chapter 11 reorganization or Chapter 7 liquidation—and it’s not very difficult. Three creditors with claims in the amount of $5,000 or more can initiate an involuntary bankruptcy case. This very rarely means that the business is being forced into a liquidation event. The probability is virtually 100 percent that the bankruptcy judge will allow the case to be converted to a Chapter 11 proceeding. It simply allows the debtor and creditors to have the ability to arrive at a court-directed reorganization plan. If the bankruptcy court dismisses an involuntary petition, the court may make the filing creditors pay court costs and any damages. In instances of a bad faith filing, the court might grant compensatory or punitive damages. The potential liability for dismissed petitions may deter creditors from taking le
