Guide-for-Nonprofit-Organizations-Bankruptcy-Issues-FINAL-with-ads

outset, however, cases under either chapter start the same way: a petition for bankruptcy reliefis filed.Under the Bankruptcy Code, either a debtor or a debtor’s creditors can file a bankruptcypetition. If the former, then the case is referred to as a ―voluntary‖ one; if the latter, then it is an―involuntary‖ case. Significantly, an involuntary case cannot be commenced against a―corporation that is not a moneyed, business, or commercial corporation.‖ As such, nonprofitorganizations are not subject to involuntary bankruptcies—these organizations can only enterbankruptcy willingly. This Guide, therefore, only addresses voluntary cases.Once a debtor files a voluntary petition, the ―order for relief‖ is entered. This seeminglyministerial event gives rise to significant substantive ramifications by erecting a wall betweenthe debtor’s pre- and post-petition financial affairs. For example, in a Chapter 7 case, only debtsthat arose prior to entry of the order for relief can be discharged. Similarly, in a Chapter 11case, debts incurred after the order for relief is entered are entitled to ―administrative priority‖claim, which enables a creditor with that type of claim to payment ahead of general unsecuredcreditors.The answer to when a person or entity can commence a bankruptcy case is surprisingly simple:at any time, subject to certain exceptions related to serial filings that are not relevant here. Mostimportantly, the Bankruptcy Code does not impose affirmative requirements on prospectivedebtors. Indeed, no showing of insolvency is required nor showing of financial troubles or thenecessity of the relief sought. Bankruptcy law policy in the United States, since at least 1898,has favored open access to the bankruptcy system.As noted above, a debtor must file a ―petition‖ to access the bankruptcy system. The petitionitself, which must conform to Official Form 1, is straightforward and easy to complete. Inaddition to general, biographical information about the debtor, Official Form 1 contains severalcheck boxes that present questions like: ―type of debtor‖ (e.g., individual, corporation, etc.);―nature of business‖ (e.g., health care business, railroad, stockbroker, etc.); nature of debts (e.g.,consumer debts versus business debts); and several others. A debtor must also submit a filingfee with the petition, and that fee is governed by 28 U.S.C. section 1930(a). That’s it—indeed,the act of filing for bankruptcy relief is quite simple.In sum, the answers to the questions posed at the outset of this section are:Who may commence a bankruptcy case? A debtor or its creditors, but in the case of anonprofit organization only the organization can commence the case.When may a debtor commence a bankruptcy case? At any time—the Bankruptcy Codedoes not impose an affirmative insolvency requirement or initial showing of financialdistress.How may a debtor commence a bankruptcy case? A debtor can commence abankruptcy case by filing a petition, using Official Form 1, and by paying the requiredfiling fee.18