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REG: Business Law: Bankruptcy - Involuntary Petition Filing Requirements - YouTube
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All right guys. Now, we're going to go
through a scenario with an involuntary
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petition into bankruptcy. Now, remember,
7 and 11 could be both voluntary or
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involuntary, we've emphasized Chapter 13,
individuals only, voluntary only. So
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when it's a voluntary case, we know the
debtor is filing that order of relief,
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you don't have to be insolvent. But if
you're an individual, don't forget if you
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want to stay in Chapter 7, you got to
pass those income tests. Now, basically,
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when it's voluntary you have to tell the
courts, "Listen, I have debts of any
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amount, there's no mandatory minimum nor
is there any particular number of
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creditors." You just tell the court, I
cannot pay those debts when they become
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due. And then don't forget the silly
stuff like spouses, yes, they can file
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jointly helps them save filing fees etc.
Okay. When it's a voluntary petition,
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remember that constitutes an automatic
order for relief. Now, when it's
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involuntary which we'll review in a
second, that's not an automatic order of
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relief. Remember there's that gap period
which we'll get into in a second. All
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right. So let's take a look at some of
the stuff we got going on in this
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problem. We've got lots of people now.
Wow, look at this. It's like a
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Frankenstein movie. You've got the
people with the torts and stuff coming
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after you, you got to love it. All
right. We've got Penze Inc., closely
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held corporation, was petitioned
involuntarily into bankruptcy. So here
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we have an involuntary petition. So guys
you got to remember those specific rules
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for the involuntary petition which we're
going to review here. When you see
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involuntary petition on the exam, you
immediately think cannot be 13, it's got
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to be 7 or 11. Now, only the unsecured
creditors can petition that debtor into
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an involuntary bankruptcy proceeding.
Basically, they have to allege that the
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debtor is not paying debts when they
become due, i.e., the debtor is in
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default. Okay. Remember, you can't push
the farmers or the charities into
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involuntary bankruptcy, right? That
little tidbit. Okay. So the big issue
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is, who has to join in this petition?
And there is a minimum amount that has to
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be owed. Okay. So where it stands
today, it's 16,750 in unsecured,
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undisputed debt. So that's the first big
piece of information you guys have to
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remember. The other issue is how many
creditors do you need to join in the
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petition? Well, if you have less than 12
creditors and all you need is one
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creditor who's owed, at least that 16,750 in unsecured undisputed debt. Now, if
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you have a lot of creditors, which is
defined as 12 or more, then you're going
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to need at least three who are in the
aggregate owed, that 16,750 in
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undisputed, unsecured debt. And
remember, they don't have the each owed
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the 16,000. In the aggregate, they have
to be over 16,750 in unsecured,
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undisputed debt. Okay. Don't forget in
that involuntary petition, there's that
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gap period. So it's not an automatic
order of relief like you have with the
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voluntary. Generally, it's going to take
the courts some time to determine whether
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or not the petition is warranted or not.
So that gap period which is going to be
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in the SAG, the G in the SAG when we get
to priorities, the court is going to need
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some time to figure out whether or not
this is a legitimate petition. Okay.
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Generally, the gap period is about 20
days and then there are the special rules
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for those creditors who come into the
picture during that gap period they get
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some priority. All right. So getting
back to our facts here. Closely held
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corporation petitioning voluntarily into
bankruptcy, now they want to liquidate.
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Okay. Remember, when you see Chapter 7,
there's no hope, Chapter 11 there's hope.
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Okay. Chapter 7, that business will be
dissolved. Individuals get discharged
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here, the business will cease to exist.
All right. Now, the debtor here is
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contesting the petition. Now, Penzi has
not been paying debts as they become due,
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so that's the big thing with an
involuntary petition. The creditors
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don't have to allege that the debtor is
insolvent, that the liabilities exceed
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their assets. Okay. They just basically
have to tell the court, debtor has not
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been paying those debts as they become
due and we have the proper number and
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amount. Well, it doesn't look like their debtor here has a leg to stand on. This
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guy defaulted on the mortgage loan
payments, he owes back taxes. All right.
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So the cash value of his bankruptcy
estate after the sale of all the assets
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and payment of admin is 104. All right.
So let's see what we got. Now, we have
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the following creditors. First of all,
what I want to do is pop up real quick
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all these creditors, so we can see the
number of creditors we have here. All
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right. So just looking at the number of
creditors, we obviously have less than
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12. So all we're going to need is just
one who is owed that 16,750 in the
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unsecured undisputed debt. All right.
So we got the bank. Fracon bank. What
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do we know about Frankenstein here? They're owed 75,000 in principal and accrued
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interest. But it's a mortgage loan, it's
secured by the property. So that's not
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unsecured since they're secured, they
cannot push this guy involuntarily or
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into bankruptcy, they're out. The IRS is
owed 12. Okay. So the IRS can't do it
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by themselves, they would need somebody
else to join. JOG Office Supplies is an
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unsecured creditor, but they're owed only
2,000. So the 12 and the two were
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getting close to the 16,750. Nanstar has
an unsecured claim of 1,200. They can't
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do it by themselves and if they join the
other ones, we still are not quite at
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that 16,750. Okay. Then who do we
have? We got Decoy, a claim of 20,000 of
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which only 2,000 is secured. So that's
18,000 in unsecured and we'll presume
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undisputed debt. So we're going to need
Decoy here. All right. No doubt about
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if they're going to have to join this
petition, all right? So with less than
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12, all you need is one. We could have
more than one, but all we need is Decoy
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can do it by themselves, 16,000 unsecured
debt. So Decoy Publishers is going to
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have to be a part of the filing, either
they'll do it by themselves or others
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will join in, but we need Decoy. All
right, good job. Let's take a look at
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our next scenario now.
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