Defending Against Involuntary Bankruptcy Petitions

What is an involuntary bankruptcy petition?

Creditors can file an involuntary bankruptcy petition to force a debtor into bankruptcy. Creditors may file when the debtor has failed to pay debts, and creditors believe bankruptcy is the best way to recover their money.

The debtor can defend against involuntary bankruptcy by presenting evidence that the creditors have not met the criteria for involuntary bankruptcy. For example, the debtor may argue that it is paying its debts as they become due, that the creditors who filed the petition are not eligible to do so, or that the creditor filed in bad faith. The debtor may also challenge the petition on procedural grounds, such as alleging improper service of the petition or that the creditors who filed the petition do not have standing to do so.

If the court rules for the creditors, the debtor must begin involuntary bankruptcy. On the other hand, if the court rules for the debtor, the petition will be dismissed, and the debtor will not be forced into bankruptcy.

Need help to defend against involuntary bankruptcy petitions? Schedule your consultation today with a top bankruptcy and restructuring attorney.

What legal issues typically arise related to involuntary bankruptcy petitions?

The following disputes are among the most common in an involuntary bankruptcy:

Eligibility of creditors: Only certain types of creditors can file an involuntary bankruptcy petition, so those filing must establish their eligibility.
Timeliness of petition: The petition must be filed within a specific time frame and meet other procedural requirements to be considered valid.
Debt Payment: The creditors must demonstrate that the debtor cannot pay debts as they come due.
Bad faith: The creditors must not file in bad faith, such as to harass or intimidate the debtor or for some other improper purpose.
Standing: The creditors who filed the petition must have standing to do so, meaning they must have a legally recognized interest in the case’s outcome.
Evidence: Evidence such as financial records, contracts, and other documents must support the allegations in the petition,
Due process: The debtor must receive proper notice and an opportunity to argue their position in court, and the proceedings must be fair and impartial.

What are relevant laws related to involuntary bankruptcy petitions in Florida?

The relevant laws related to involuntary bankruptcy petitions in Florida are in the Federal Bankruptcy Code. The Bankruptcy Code provides a legal process for individuals and businesses to reorganize or discharge their debts. It establishes a uniform set of rules and procedures for handling bankruptcy cases, including eligibility criteria for filing for bankruptcy, the process for debt elimination, and the rights and responsibilities of creditors and debtors during the bankruptcy process.

What is required to file an involuntary bankruptcy petition in Florida?

Under the Federal Bankruptcy Code, there are three statutory requirements for filing an involuntary bankruptcy petition: (1) there must be three or more petitioning creditors; (2) each petitioning creditor must hold a claim against the debtor that is not contingent as to liability or the subject of a bona fide dispute; and (3) the claims must aggregate at least $16,750 more than the value of liens on the debtor’s property.

When a set of facts is appropriate to meet the requirements of involuntary bankruptcy, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies, such as:

Dismissal of the petition
Conversion to voluntary bankruptcy
Repayment plan formation
Liquidation of assets
Stay of creditor actions

To see what actions may be available for your unique situation, please contact our office to set up your initial consultation.

What are common defenses to involuntary bankruptcy petitions in Florida?

The primary defenses to involuntary bankruptcy petitions in Florida include the following:

Timeliness: The debtor can argue that the creditor did not file the petition on time, preventing the automatic stay from applying.
Eligibility of creditors: Creditors may contend that the petitioners were ineligible to do so, either because they do not meet the requirements under the Bankruptcy Code or because they are not legitimate creditors of the debtor.
Validity of debt: The debtor might contend the debt owed to the creditors is invalid or disputed and should not apply to bankruptcy proceedings.
Good faith: If the petition was filed in bad faith or improperly, such as to harass or intimidate the debtor, the court should dismiss it.
Conversion to voluntary bankruptcy: The debtor may choose to convert the involuntary bankruptcy case to a voluntary bankruptcy case, allowing them to retain more control over the process and the outcome.

To see what defenses may be available for your unique situation, please contact our office to set up your initial consultation.

Have more questions about an involuntary bankruptcy petition-related situation?

Crucially, this overview of defending involuntary bankruptcy petitions does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.