Publications

Involuntary Bankruptcy: Practical Tips and Advice for Creditors

October 24, 2008
SRZ Client Memorandum

Creditors often consider filing an involuntary bankruptcy petition against their financially distressed debtors. Before using this extraordinary remedy, a creditor should evaluate whether it will achieve a valid business objective. Additionally, each creditor should evaluate whether there is a valid basis to support the filing. When the debtor's bankruptcy is appropriate, it can be a valuable step in maximizing a creditor's recovery. But the stakes are high. If the involuntary petition is dismissed, the bankruptcy court can direct each petitioning creditor to pay the debtor’s legal fees and can award damages. We identify here some of the critical issues that should be considered when deciding whether to commence an involuntary bankruptcy case.