This section is from the book "American Commercial Law Series ", by Alfred W. Bays. Also available from Amazon: American commercial law series.
The voluntary petition should be made out on the official forms itemizing the assets, and the indebtedness and claiming the bankrupts exemption.
A voluntary petition in bankruptcy is made out upon the Official Form No. 1. Schedule A attached to the petition itemizes the debts. Schedule B itemizes the assets and claims the exemptions.
Upon the filing of this petition in proper form ad judication follows as a matter of course. A reference to a referee is made, a date for the first meeting of the creditors is set, and a trustee elected if assets exceed exemptions.
The involuntary petition must allege an act of bankruptcy and must show that the debtor is subject to the jurisdiction of the court. It must be signed by three creditors if there are twelve or more creditors. If less than twelve, a single creditor may file. But the petitioning creditor or creditors must have claims aggregating five hundred dollars or over and the bankrupt must owe one thousand dollars or over. The petitioning creditors must have provable debts.
(1) Who may file petition.
(a) Number of creditors. "Three or more creditors who have provable claims against any person which amount in the aggregate, in excess of the value of securities held by them, if any, to five hundred dollars or over; or if all the creditors of such person are less than twelve in number, then one of such creditors whose claim equals such amount may file a petition to have him adjudged a bankrupt."94
If the petition avers that the creditors are less than twelve in number and is filed by less than three creditors, and the answer avers there are more than twelve, the answer must be accompanied with a list of the creditors with their addresses, and the court shall delay the hearing and notify such creditors to come in and if prior to or during the hearing other creditors join, the petition shall be sufficient. Otherwise it shall be dismissed for lack of sufficient creditors.95
These three creditors are jurisdictional - "the law is now well settled beyond dispute that the existence of three provable claims held by three petitioners, respectively of the alleged bankrupt, and if challenged by pleading, plenary proof thereof is jurisdictional and indispensable to the maintenance of an unvoluntary petition in bankruptcy."96
(b) Character of creditors. A creditor is not qualified as a petitioning creditor unless he has a provable claim.97 Hence a preferred creditor cannot be counted unless he surrenders his preference.98 Hence, a secured creditor cannot be counted except to the extent his claim ex94. Bankr. Act, 1898, SEC. 59b.
95. Id. SEC. 59d.
96 Cutler v. Nu-Gold Ring Co., (C. C. A. 8th Cir.) 264 Fed. 836.
ceeds his security.99 Unless he waives his security and turns it in for the benefit of the estate generally.100
97. Bankr. Act, 1898, SEC. 59b.
98. Stevens v. Nave-McCord Mercantile Co., 17 A. B. R. 609.
(2) What petition must allege.
(a) That debtor is a person against whom a petition may be filed under the law. The petition must allege that the party against whom the petition is filed is not within the exempted occupations or kinds of businesses. The court has no jurisdiction over such persons or corporations. It is as to them as if no bankruptcy act existed.101
(b) That an act of bankruptcy has been committed. The petition must show that an act of bankruptcy has been committed. It must state the specific facts relied on, with time, place and circumstances, so that the alleged bankrupt may know what he is required to answer.102 For instance if a preferential payment be alleged, the allegation must show that thereby one creditor obtained a greater preference than those in the same class.103
In voluntary bankruptcy adjudication follows the filing of the petition as a matter of course; in involuntary bankruptcy it follows if the bankrupt defaults or follows the finding against him if he pleads. Thereupon the creditors hold their first meeting, examine the bankrupt and elect the trustee.
99. Emerine v. Terault, 34 A. B. R. 55.
100. Morrison v. Rieman, 41 A. B. R. 325.
101. Vallely v. Northern Fire Ins. Co., 245 U. S. 347.
102. Clarke v. Henne & Meyer, (C. C. A. 5th Cir.) 127 Fed. 288.
103. Mills v. J. H. Fisher & Co., 159 Fed. 897, 16 L. R. A. N. S. 656.
(1) Adjudication of bankruptcy in voluntary cases.
If the petition and schedules showing assets and liabilities are in due form, a reference is made and adjudication follows as a matter of course.
(2) Adjudication in involuntary cases.
If the bankrupt has no defense, he defaults and the adjudication follows. He may attack the petition for insufficiency in form, as lacking the necessary allegations, or may depend upon an issue of fact, as that he is a farmer or a wage earner, or that he did not commit the act of bankruptcy alleged, or that he is or was not insolvent. He is entitled to a jury. In case the issues are found against him he is adjudicated a bankrupt.
(3) First meeting of creditors.
Upon adjudication, the date for the first meeting is set by the referee and creditors notified. They attend for the proof of their claims, the election of the trustee and the examination of the bankrupt. The examination of the bankrupt and the questions he must answer is discussed elsewhere.
(4) Election of trustee.
At this first meeting the trustee is elected by vote of the creditors holding the majority in number and amount of claims.
The trustees' duties in the administration of the estate are set out in detail under the bankruptcy act.
The Law provides:104
Duties of trustees. (a) Trustees shall respectively
(1) Account for and pay over to the estates under their control all interest received by them upon property of such estates;
(2) Collect and reduce to money the property of the estates for which they are trustees, under the direction of the court, and close up the estate as expeditiously as is compatible with the best interests of the parties in interest; and such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereof; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.
(3) Deposit all money received by them in one of the designated depositories;
(4) Disburse money only by check or draft on the depositories in which it has been deposited;
(5) Furnish such information concerning the estates of which they are trustees and their administration as may be requested by parties in interest;
(6) Keep regular accounts showing all amounts received and from what sources and all amounts expended and on what accounts;
(7) Lay before the final meeting of the creditors detailed statements of the administration of the estates;
(8) Make final reports and file final accounts with the courts fifteen days before the days fixed for the final meetings of the creditors;
(9) Pay dividends within ten days after they are declared by the referees;
(10) Report to the courts, in writing, the condition of the estates and the amounts of money on hand, and such other details as may be required by the courts, within the first month after their appointment and every two months thereafter, unless otherwise ordered by the courts; and
(11) Set apart the bankrupt's exemptions and report the items and estimated value thereof to the court, as soon as practicable after their appointment.
(b) Whenever three trustees have been appointed for an estate, the concurrence of at least two of them shall be necessary to the validity of their every act concern ing the administration of the estate.
(c) The trustee shall, within thirty days after the adjudication, file a certified copy of the decree of adjudication in the office where conveyances of real estate are recorded in every county where the bankrupt owns real estate not exempt from execution, and pay the fee for such filing, and he shall receive a compensation of fifty cents for each copy so filed, which, together with the filing fee, shall be paid out of the estate of the bankrupt as a part of the cost and disbursements of the proceedings.