Stop worrying About Being Forced Into Bankruptcy By Unhappy Creditors

Are you worried bout being forced into bankruptcy by unhappy creditors? Stop worrying. The odds are similar to being hit by a comet–very unlikely. Here are the reasons:

Typically, any business will have a secured loan as a priority lender in first position on all the valuable assets. If you were forced into bankruptcy by a handful of creditors, any liquidation would be paid out to the secured bank in first position and not to the subordinate, disgruntled creditors who you think may force you into bankruptcy. So, why would a small group of creditors pay to force a bankruptcy with no hope for a cash return? It doesn’t happen, for exactly this reason.

Furthermore, it is not a clear path as any motions to force a business into a Chapter 7 liquidation for the benefit of the  creditors can be answered with a conversion to a Chapter 11, a very costly and time-consuming process for everyone, and eventually, likely to end in a Chapter 7 liquidation with all liquidated proceeds going to the secured parties in priority position.  What’s the point? There is no upside, no potential for gain and it will cost much and take much time and effort. So why bother? There is no gain.

For these reasons, there is little to be feared. It happens so infrequently and it is not a real threat. In fact, the only time it happens is when there are emotionally charged, pissed off, very angry creditors who are willing to spend their money just to force the liquidation even with no hope of return, just to put you out of business. This is possible, but for obvious reasons, it seldom happens. There is little to be concerned about regarding being forced into a Chapter 7 bankruptcy by a few disgruntled creditors. It really is very unlikely it will happen. Stop worrying.