Most of the time, people and businesses decide for themselves if they will file for bankruptcy and thereby seek relief under the Bankruptcy Code. However, petitioning creditors may sometimes find it beneficial to force a debtor into bankruptcy. Why would someone file an involuntary bankruptcy petition?
- If the debtor is being pursued by multiple creditors, bankruptcy provides a single court where all claims and remedies against the debtor can be pursued in an orderly fashion.
- If the debtor has made preferential transfers or fraudulent conveyances, they can be recovered in the bankruptcy court for the benefit of all creditors.
- Bankruptcy courts have nationwide jurisdiction which can be very beneficial for pursuit of assets anywhere. Moreover, bankruptcy treaties allow for effective pursuit of all assets of the debtor anyplace in the world – for example as has been the case in the notorious Bernard Madoff bankruptcy case.
- You may also find that you are defending against an involuntary petition to force you into bankruptcy. But in order to be subject to an involuntary bankruptcy petition, three petitioning creditors would have to join in a bankruptcy petition – if you have 12 or more creditors – and they would have to prove that you are not generally paying your debts as they come due.