Emory Bankruptcy Developments Journal


Seth Webster


When a creditor initiates an involuntary bankruptcy, third parties can be imperiled as much as the debtor. Where an involuntary bankruptcy is filed in bad faith, these third parties may be subject to serious collateral harm. While no court has awarded collaterally harmed third parties damages arising from an involuntary bankruptcy, the Third Circuit has recently open the door for some form of non-debtor recovery. In 2016, the Third Circuit declared that non-debtor third parties could seek a recovery for damages arising from an involuntary petition in state court. After analyzing this issue, the author proposes a hybrid approach for making harmed third parties whole.