“Forced bankruptcy” is one of the scariest terms for a business owner to hear. For many people, the largest question surrounding a business bankruptcy is whether or not creditors can force the company to take action. Unfortunately, there is no clear-cut answer to this question, as there are many intricate details when it comes to filing for bankruptcy. However, understanding the two ways a business bankruptcy can be “forced” will reveal why filing for bankruptcy matters to both the company and its creditors.
Two Types of Forced Business Bankruptcy
It’s typical to think of filing for bankruptcy as a voluntary process, but when dealing with investors and creditors, businesses face more complex financial obligations. There are two ways in which a business can be forced into filing for bankruptcy. They are:
Forced but voluntary bankruptcy. In this case, the business itself has filed for a Chapter 7 or Chapter 11 business bankruptcy with the help of a bankruptcy attorney. The business voluntarily filed for these options, but only in response to actions taken by their creditors. For instance, a creditor may have begun foreclosure proceedings and in an effort to protect itself, the organization voluntarily filed for a business bankruptcy. In other words, filing for bankruptcy was voluntary, but the situation that initiated the process was forced.
An authentic involuntary bankruptcy. Fortunately for business owners, it’s difficult and rare for a truly involuntary business bankruptcy to occur. For this forced filing for bankruptcy procedure to occur, there must be:
· Three or more creditors
· A minimum $14,425 in debt
· No or little efforts by the business to pay the debt
An involuntary business bankruptcy has many differences from filing for bankruptcy voluntarily. Fortunately, the creditor complications of a forced business bankruptcy are so great that this is one of the lesser-employed creditor tools.
To avoid this situation, it’s important to stay current on your business’s payments as much as possible. And if a business bankruptcy must be considered, then certainly seek the counsel of an experienced bankruptcy attorney as soon as possible.