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Involuntary Bankruptcy Standard
A judgment creditor that is considering filing an involuntary bankruptcy petition against a debtor should consult venue-specific controlling law if the debtor has appealed the judgment. Depending on the jurisdiction, the debtor's appeal may or may not be a factor for the bankruptcy court to consider in determining whether the creditor's claim meets the involuntary petition requirements of the Bankruptcy Code. Generally, to be eligible as a petitioning creditor in an involuntary bankruptcy case, a creditor must hold a claim against the debtor that, among other things, “is not contingent as to liability or the subject of a bona fide dispute as to liability or amount.” 11 U.S.C. ' 303(b)(1).
Under the approach of certain courts, when the creditor's claim is based on a state court judgment from which the debtor has appealed, and the judgment is not stayed during the appeal, the appeal could be deemed a “bona fide dispute” rendering the judgment claim ineligible to support the involuntary petition.
In a recent decision, the Ninth Circuit Court of Appeals considered this question as a matter of first impression in Marciano v. Chapnick (In re Marciano), 708 F.3d 1123 (9th Cir. 2013). Adopting a stricter approach than that of the Fourth Circuit in Platinum Fin. Servs. Corp. v. Byrd (In re Byrd), 357 F.3d 433 (4th Cir. 2004), the Ninth Circuit concluded that an unstayed, enforceable state court judgment ' despite an appeal ' is per se a claim against the debtor that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount. The Fourth Circuit in Byrd, by contrast, rejected the per se rule in favor of an approach that is more flexible, and which therefore potentially may inure to the debtor's benefit. Under this approach, the bankruptcy court may consider the details of the appeal and deem it to be a bona fide dispute.
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