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Involuntary Bankruptcy Primer Part I: Understanding the Oft Ignored Involuntary Bankruptcy Petition (with Bankruptcy Cave Embedded Briefs for Your Use!)

August 30, 2016

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Editor’s Note:  This is a new one for us at The Bankruptcy Cave.  We are starting a series of primers, covering a narrow range of law but with more depth than just “here’s a recent case.”  And also, we have our first edition of “The Bankruptcy Cave Embedded Briefs” – top quality briefs on a certain issue, feel free to download to your own form files or come back and grab ’em when you need ’em.  Let us know what you think – we are always trying to improve things around here for our readers.

 

Involuntary bankruptcy is an underused but potentially powerful tool in the Bankruptcy playbook.  Although the process to initiate an involuntary case is relatively straightforward (and has been largely unchanged for decades), the scarcity of involuntary petitions filed each year means few bankruptcy lawyers have any practical experience in this area of law.  In 2012

The Un-Bankruptcy: A Texas Receivership as an Alternative to Bankruptcy (and fourteen ways to appoint a receiver in The Lone Star State)

April 11, 2016

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Creditors seeking to exercise control over a borrower or collateral may utilize a number of remedies. They may seek a foreclosure or UCC sale, assignment for the benefit of creditors, file an involuntary bankruptcy petition under Section 303 of the Bankruptcy Code (if they hold unsecured claims),[1] or, seek the appointment of a receiver.

Bankruptcy and receivership provide a particular advantage because they allow creditors to take control of the debtor or collateral without the risk of taking possession.  (See the prior post by my colleagues Jay Krystinik and Keith Aurzada on ways lenders may minimize risk in wresting control of a property away from a obligor, here.)  Receiverships provide the additional benefit of flexibility and, often, are more easily obtained and less costly than an involuntary bankruptcy.[2]  Both federal[3] and state laws provide for the appointment of receivers.

Receivership laws vary from

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