Mamtek, a company based in Moberly, Missouri, is currently facing the potential of a forced Chapter 7 bankruptcy filing by five of its creditors. The situation involves Mamtek, which manufactures an artificial sweetener, and its plans to open a plant in Moberly.
According to sources, the case has unfolded like this:
- Mamtek planned to build a factory in Moberly. To finance the construction, the city of Moberly issued bonds worth $39 million to the company.
- Missouri-based UMB Bank reportedly agreed to serve as trustee for the bonds, meaning that it financed the city’s agreement with Mamtek.
- This fall, Mamtek missed a payment to the city of Moberly, and indicated that it could not afford to complete the half-built factory.
- Without payments from Mamtek, Moberly indicated that it would default on the bonds, leaving the bank on the hook for tens of millions of dollars.
- The bank, along with other creditors (mainly construction-related companies) took the case to the court system, urging the bankruptcy judge to force Mamtek into bankruptcy so they could recover their money.
If the judge rules in favor of the creditors, Mamtek will have to sell its assets and distribute the profits among its creditors to compensate them for the money Mamtek owes them. If the judge does not rule for the involuntary Chapter 7 bankruptcy, Mamtek may be able to abandon its building and the creditors could lose a significant portion of their investment.
Involuntary Bankruptcy for Individuals
Involuntary bankruptcy is also possible for individuals – that is, a person’s creditors can theoretically get together and attempt to force a person into bankruptcy in order to recover some of their money.
However, in the case of individuals, forced bankruptcy is fairly rare. This is partly because it requires creditors to act together and agree to request a forced bankruptcy, and partly because most people who need bankruptcy protection often do not have sufficiently valuable assets to make a liquidation and creditor distribution worthwhile.
Further, in order for the involuntary bankruptcy of an individual to be legal, certain conditions must be met:
- For a single creditor to force involuntary bankruptcy, creditors must be unsecured, fewer than 12 in number, and owed at least $5,000 by the debtor.
- If a debtor has 12 or more creditors, at least three of them must join together to file the involuntary bankruptcy petition.
- Creditors can force an individual into Chapter 7 bankruptcy (and possibly Chapter 11), but not into Chapter 13 bankruptcy.
- Debtors have a chance to answer the involuntary bankruptcy petition in court.
It’s important to know that a creditor’s involuntary bankruptcy petition for a debtor does not guarantee that the court will agree to push the debtor into bankruptcy. If you have received notice that creditors are attempting to force you to file for bankruptcy, it’s a good idea to speak with a bankruptcy lawyer about your options.