I wanted to share some information I found online regarding Involuntary Bankruptcy.

Bad Faith Filings

Factors that a court will look at in deciding whether an involuntary petition has been filed

in bad faith are:

? Whether the petition’s allegations are well grounded in fact.

? Whether the claims of one or more of the petitioning creditors is in bona fide

dispute.

? Whether the filing of the petition is viewed as a strategy to collect a debt, or

more as the advancement of legitimate objectives of creditors to protect

themselves against a failing business, preferential transfers, etc.

? Whether the petition was motivated by an improper purpose, such as ill will,

malice, or harassment.

As such, courts generally hold that a creditor cannot file an involuntary petition simply to

gain leverage over a debtor as a means of extracting payment.

Abstention

Even where the petitioning creditors are able to prove all of the elements for the granting

of an involuntary petition, and even where there is no issue as to whether the petitioning

creditors have acted in good faith, the Bankruptcy Court may still dismiss an involuntary

petition under the doctrine of abstention.

The decision whether to abstain is within the sole discretion of the Bankruptcy Court and,

by statute, is not reviewable by an appellate court. There are seven factors that courts

generally consider when deciding whether or not to abstain. They are:

1) The economy and efficiency of administration.

2) The availability of another forum, or the actual pendency of an insolvency

proceeding in one.

3) Whether federal proceedings are necessary to reach a just and equitable

resolution.

4) The availability of alternative means for an equitable distribution of assets and

value.

5) Whether the debtor and creditors are able to work out a less expensive out-ofcourt

arrangement that better serves all interests in the case.

6) Whether a non-federal insolvency proceeding has progressed so far that it would

be costly and time consuming to start afresh with the federal bankruptcy process.

7) The purpose for which bankruptcy jurisdiction was sought by the petitioners.