A trade creditor concerned about a financially distressed customer’s failure to pay its debts may consider joining in the filing of an involuntary bankruptcy petition against that customer. Forcing a customer into an involuntary bankruptcy proceeding is a powerful tool—but with great power comes great responsibility. A petitioning creditor that fails to satisfy the Bankruptcy Code’s requirements for an involuntary petition risks not only dismissal of the involuntary bankruptcy case, but also exposure to large damage claims that a debtor may assert.
Even where petitioning creditors satisfy the requirements of the Bankruptcy Code, a court may still dismiss an involuntary petition if it finds that the petition was filed in bad faith. This happened in In re PTGi International Carrier Services, Inc., where the United States Bankruptcy Court in Delaware, in a March 2025 decision, held that a petitioning creditor commenced an involuntary bankruptcy case in bad faith and ordered the creditor to pay the debtor’s fees and costs in defending against the petition (and even reserved the debtor’s right to seek actual and punitive damages against the petitioning creditor!).
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