Claiming that they are owed more than $60 million, some of its creditors have forced a long-term acute-care hospital into bankruptcy.
Specialty Hospital’s debt consists of corporate debt, unpaid taxes, unpaid utility bills and a pending Medicaid fraud claim. The hospitals landlord, Capitol Hill Group, along with CroppMetcalfe and JFW Services, filed the action in U.S. Bankruptcy Court in Wilmington, Delaware.
The hospital, which operates two long-term care facilities and two nursing homes, has 21 days to respond.
Nearly all individual bankruptcy filings are “voluntary” petitions: no one is taking you to court. Involuntary bankruptcy proceedings against individuals are very few and far between. Because the creditors know that the debtors have little or no assets, they actually wind up with less in a bankruptcy proceeding, especially if the debt is unsecured.
Involuntary bankruptcy proceedings against a large or small business, although still rare, are a bit more common. To begin an action, a creditor must be owed at least $14,425 in unsecured debt. The creditor files a petition, and the debtor has 20 days to respond. If the debtor does nothing, the Chapter 7, 11, or 13 Bankruptcy proceeds.
If the debtor challenges the action, the judge immediately holds a hearing to determine if the petition has merit. The judge may find, based on the evidence, that the petition was filed in good faith and that the debtor was delinquent.
Creditors should tread carefully, however. State court proceedings are generally driven by the creditor. Bankruptcy proceedings are driven by the Bankruptcy Court and the Trustee, and creditors who are anxious to get into bankruptcy often run for the door, only to find that it is blocked by the Trustee and the best interests of the other creditors. And that is only what is possible if the judge found that the petition was valid. If the judge finds in favor of the debtor, that the petition did not meet the requirements of the Bankruptcy Code, the action is immediately dismissed and the creditor may be forced to pay the debtor’s fees and costs, which may far exceed the debt the creditor was trying to collect.
Contact our office for a free consultation with attorneys who understand debtors and creditors’ rights under the Bankruptcy Code.