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How creditors can force your business into bankruptcy and ways to avoid it

On Behalf of | Jan 27, 2023 | Business Bankruptcy |

As a business owner, facing involuntary bankruptcy can be a terrifying prospect. It’s important to know what steps creditors can take to force your business into bankruptcy and how to prevent it from happening in the first place.

What is involuntary bankruptcy?

Involuntary bankruptcy can be applied when a petitioning creditor has certain requirements for the debtor to satisfy, such as repayment of a debt, and the indebted party has failed to do so. For the creditor to file an involuntary petition with bankruptcy, they need to prove that the debt is valid and that the debt is worth more than $18,600.

Why would a creditor file against my business?

When creditors are not paid, they may take extreme measures to receive the money they are owed. One of those measures is to file an involuntary bankruptcy petition against your business. Knowing what actions may trigger creditors to file involuntary bankruptcy can help you stay one step ahead.

Your business is behind on payments

If your business has been late or delinquent on payments owed to creditors, they may take action by filing an involuntary bankruptcy petition against your company.

Your business is insolvent

A creditor can file for bankruptcy if a business has become insolvent. Insolvency occurs when a company’s assets no longer cover its debts. If you’ve been unable to pay back your debts despite trying to negotiate new payment plans with creditors, they may take action and file for bankruptcy.

You disagree over the debt owed

A creditor can also file for involuntary bankruptcy if you and the creditor disagree on the amount of money that is owed.

How do I fight an involuntary bankruptcy petition?

If you find yourself in a situation where a creditor is filing for involuntary bankruptcy against your business, there are a few ways you can fight back.

Negotiate a new payment plan

You can negotiate with the creditor and set up a payment plan to settle your debt, avoiding the process of involuntary bankruptcy altogether. Payment options can be done in installments or one lump sum.

File an objection

You can also file an objection with the court, providing proof that the creditors do not meet all the requirements for involuntary bankruptcy. This strategy will give you a chance to prove your case and potentially get the petition dismissed.

It is important to remember that taking legal action should always be a last resort. To protect your business, make sure to keep up with payments on time and stay in communication with creditors. If you do find yourself in a bind, however, consider these options to avoid involuntary bankruptcy.