Opinion ID: 510088
Heading Depth: 1
Heading Rank: 5

Heading: The Requirement of an Express Finding of Insolvency Under

Text: Sec. 303(h)(1) 37 Debtor further contends that the bankruptcy court erred by granting the involuntary petition without making a finding under 11 U.S.C. Sec. 303(h)(1) that the debtor was not paying such debtor's debts as such debts become due unless such debts are the subject of a bona fide dispute. To grant an involuntary petition, the bankruptcy court must determine whether the creditors met their burden of proving that the debtor was not paying his debts once due. See In re Johnston Hawks, Ltd., 49 B.R. at 828; In re R.N. Salem Corp., 29 B.R. 424, 431 (S.D.Ohio 1983) (indicating that a bankruptcy court should specify the standard applied and the factors upon which it based its finding regarding the Sec. 303(h)(1) requirement). This determination should be made as of the date that the involuntary petition was filed. Matter of Bishop, Baldwin, Rewald, Dillingham & Wong, Inc., 779 F.2d 471, 475 (9th Cir.1985). 38 Because the bankruptcy court did not make this factual finding due to its dismissal of the involuntary petition, the district court, as a reviewing court, did not have a sufficient basis for ordering the bankruptcy court to grant the involuntary petition. We therefore must reverse on this issue. If the court determines that three qualified creditors have petitioned for involuntary bankruptcy, it must then determine whether the creditors have met their burden of proof under 11 U.S.C. Sec. 303(h)(1). In determining whether the creditors met this burden, the bankruptcy court should examine the totality of the circumstances, balancing the interests of the debtor with those of the creditors. See In re Molen Drilling Co., 68 B.R. 840, 846 (Bankr.D.Mont.1987); 2 L. King, Collier on Bankruptcy p 303.12 (15th ed. 1987).