Legal Definitions - petition in bankruptcy

A petition in bankruptcy is a formal legal document submitted to a bankruptcy court to officially begin a bankruptcy case. This document serves as a request for legal protection and a structured process for an individual or business that is unable to pay their debts. It can be filed either by the debtor themselves (known as a voluntary bankruptcy) or, in specific circumstances, by the creditors who are owed money (known as an involuntary bankruptcy).

• Example 1 (Voluntary - Individual): Maria, a small business owner, faced a severe downturn in her business due to unexpected market changes. Despite her best efforts, she found herself unable to pay her business loans, supplier invoices, and personal credit card debts. To prevent further financial distress and seek a legal pathway to manage her overwhelming obligations, Maria decided to file a petition in bankruptcy with the local bankruptcy court. This formal filing initiated her personal bankruptcy case, allowing her to work towards a financial fresh start under court supervision.

• Example 2 (Voluntary - Business): "Green Acres Farm," a family-owned agricultural business, suffered significant crop losses for two consecutive years due to severe weather. As a result, the farm could no longer meet its loan payments to the bank or pay its equipment suppliers. To orderly liquidate its assets and distribute the proceeds fairly among its creditors, the owners of Green Acres Farm filed a petition in bankruptcy. This action formally commenced the business's bankruptcy proceedings, seeking legal protection during the asset sale and debt resolution process.

• Example 3 (Involuntary - Creditors): OmniCorp, a large manufacturing company, had been struggling financially for months, failing to pay several of its major raw material suppliers. Concerned that OmniCorp was selling off valuable assets without intending to pay its outstanding debts, three of the largest suppliers decided to take action. Together, they filed an involuntary petition in bankruptcy against OmniCorp with the bankruptcy court. This legal move forced OmniCorp into bankruptcy proceedings, compelling the company to address its financial situation under the court's oversight and ensuring a more equitable distribution of its remaining assets to all creditors.