In addition, once a petition has been filed the company is
afforded protection from any legal action that another creditor may take.
If the offending company elects not to object then
the involuntary bankruptcy will proceed.
An involuntary bankruptcy can occur
as either a chapter 7 or a chapter 11. A chapter 11
bankruptcy allows a company to remain in business.
However, the company must present a plan of
reorganization to the court for approval. Creditors will
be paid from the proceeds of future operations. In a
chapter 7 bankruptcy the company’s assets are
liquidated. Proceeds from this procedure will be applied
to the filing creditor, as well as to other creditors to
whom the business owed money.
A business should always be aware of
the potential for a creditor(s) to file a petition for
involuntary bankruptcy. Although, this action will not
automatically cause the demise of a company it, at a
minimum, will often cause the business a good deal of
unnecessary time and expense. It is a much wiser
alternative to deal with the problem before it reaches
this stage.
Disclaimer: The information
provided in this site is not legal advice, but general
information on financial issues commonly encountered. We
shall not be liable for any errors in the content or for
any actions taken in reliance thereon. Please consult
your financial
advisor.
