Additionally, railroads can t be debtors under chapter 7, and stockbrokers and commodity brokers can t be debtors under Chapter 11. There are two ways a debtor can become the target of an involuntary bankruptcy. The first arises when a debtor isn t paying up, aside from any disputed arrears. This includes regularly missing a significant number of payments or regularly missing sizable payments. The other is if a custodian was appointed or took possession of the debtor s property within 120 days before the petition was filed.
Creditors take a risk.
If a trial finds a debtor is fair game for an involuntary bankruptcy petition, the bankruptcy court enters an order for relief. The petitioning creditors can then collect their expenses and attorney's fees right away. But if the court finds the petition was filed in bad faith, then it can award monetary damages and attorneys fees to the debtor, leaving the creditor out even more money. Because of this risk, creditors use involuntary bankruptcy petitions as a last resort, and only when they feel confident of winning. Ask an expert or become an expert .