The Steps in an Involuntary Bankruptcy

• Involuntary bankruptcy is relatively rare, and almost always occurs against businesses. If creditors feel a business is dissipating assets and intends to not pay debts, the creditors can force the business into bankruptcy where the creditors' rights can be enforced. The involuntary bankruptcy petition, however, is only a request for a hearing on whether the business should be in Chapter 7 or Chapter 11 bankruptcy. The bankruptcy court must determine whether bankruptcy is appropriate before actual bankruptcy proceedings begin.
  
  

Locate Other Creditors

• A debtor can only be forced into bankruptcy involuntarily if they owe at least $10,775. If they have 12 or more total creditors, at least three creditors must collectively submit the involuntary petition. If there are less than 12 total creditors, one creditor owed at least $10,775 can initiate involuntary bankruptcy.
  
  

File the Petition

• Form B5 (see Resources below) is the official involuntary petition form. It must be completed and signed by three creditors and/or their attorneys. The form must be filed in a bankruptcy court with jurisdiction over the debtor, which is based on the county in which the company principally conducts business or is headquartered. The creditors must pay the filing fee.
  
  

Serve Process

• The creditors must ensure the involuntary petition is served upon the bankruptcy debtor in a timely fashion. Typically this involves hiring a process server. The debtor has 20 days from the date of service to file objections to the involuntary petition.
  
  

Hearing

• After service of the involuntary bankruptcy petition, and the filing of any initial objections, the bankruptcy court will conduct a hearing on the matter to determine whether or not the debtor should in fact be in bankruptcy. If the court determines bankruptcy is appropriate, an order will be entered requiring the debtor to file the appropriate forms and documents required under the applicable bankruptcy chapter.