Deciding on an Efficient Involuntary Bankruptcy Filing Petition Rule

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Muro, Sergio A.
Bankruptcy Law
article description
Bankruptcy law deals with last recourse solutions to extreme financial and balance-sheet problems. Both debtor and his creditors will have incentives to begin an insolvency case balanced with other reasons that will encourage them not to begin it. Consequently legal systems usually tend to concentrate on rules that will spur either group to bring the bankruptcy proceeding when it is adequate. As a result some countries have creditors bringing most of the proceedings (as is the case of the United Kingdom) and others have debtors as the prime figures.This paper focuses on the creditor side of the equation and aims to provide for a normative stance on whether bankruptcy laws should promote liberal or restrictive standards for creditors to comply with in order to file an involuntary bankruptcy petition. Specifically, this paper will deal with the “unpaid due obligation” standard, which implies that a creditor can file an involuntary petition on the mere grounds of having an unpaid debt owed to the creditor. I will argue that a rule which restricts the ability of creditors to file an involuntary bankruptcy petition is inefficient.