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Petitioning a debtor into bankruptcy. Will it cost the creditor?
I have a couple of questions with respect to Involuntary Bankruptcy or petitioning a debtor into bankruptcy:
1. Does the debtor pay for the bankruptcy or does the petitioner?or Will it cost the creditor?
2. Are the terms for discharge etc the same as a voluntary bankruptcy?
With regards to petitioning someone (i.e. a person) into bankruptcy, you have to find a Trustee who will agree to act. The Trustee must be assured that there are sufficient assets (on excess income) from the debtor to pay their fees or else look to a 3rd party to guarantee them. Generally, the basic fee that we charge for a personal bankruptcy is $1,785. (that is the minimum amount we want to collect either from debtor’s income, sale of assets or collection of income tax refunds.) We get an agreement from the debtor prior to assignment that if their assets or income is not sufficient to pay the minimum amount, they agree to pay any shortfall over the course of the bankruptcy.
The costs will be the same if someone is petitioned into bankruptcy but as the debtor has not agreed, we would generally get an agreement from the petitioning creditor that our fees would be covered one way or the other. For help on the costs of bankruptcy, you can refer to my video as it may help to answer your questions.
The process is not too much different if you want to petition a company into bankruptcy, but the main consideration would be the costs of the Trustee to administer a corporate bankruptcy which are significantly higher ($15,000 and up for a basic one). Thus, the only reason to put a company into bankruptcy is if it has assets to divide up among the unsecured creditors.
However, to fully appreciate the costs to a petitioning creditor, you must also factor in the court costs to petition the debtor into bankruptcy in the first place. These costs can vary and depend upon whether or not the debtor objects to the process. If the debtor objects, then there can be signifcant costs of a trial in front of a judge with all those increased costs. Generally, a petition is handled by the petitioning creditor and his/her lawyer, the costs of which would be born solely by the petitioning creditor.
With regards to the process throughout the bankruptcy and the debtors discharge process, it is exactly the same. I usually tell people it like jumping into a swimming pool. You can either jump or be pushed, but the end you still get wet.
Colleen Craig, CA, CIRP
C.E. Craig & Associates Inc
204-2736 Quadra Street
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