A recent Ninth Circuit Court of Appeals decision provides several clear messages regarding the dangers of poorly thought out involuntary bankruptcy petitions. In In re Southern California Sunbelt Developers, Inc., 608 F.3d 456 (9th Cir. 2010), the two debtors placed into involuntary bankruptcies won an attorney fee award of $745,000 and a punitive damages award of $130,000 against all 13 petitioning creditors.
Section 303(b) of the Bankruptcy Code provides the general rule that an involuntary chapter 7 or 11 case may be commenced “by three or more entities, each of which is either a holder of a claim . . . that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount, or an indenture trustee representing such a holder, if such noncontingent, undisputed claims aggregate at least $13,475 . . .” more than the value of the underlying collateral (ifRead More