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Bankruptcy Litigation

Second Circuit Rejects Use of Involuntary Bankruptcy Petition As Collection Tool

A bankruptcy court properly dismissed a creditor’s involuntary bankruptcy petition “for cause” when it “would serve none of the Bankruptcy Code’s goals or purposes … and [when] the sole [petitioning] creditor is not substantially prejudiced by remedies available under state law,” held the U.S. Court of Appeals for the Second Circuit in In re Murray.

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A bankruptcy court properly dismissed a creditor’s involuntary bankruptcy petition “for cause” when it “would serve none of the Bankruptcy Code’s goals or purposes … and [when] the sole [petitioning] creditor is not substantially prejudiced by remedies available under state law,” held the U.S. Court of Appeals for the Second Circuit on August 14, 2018. In re Murray, 2018 WL 3848316, 7 (2d Cir. Aug. 14, 2018). In its view, the bankruptcy court “declined to serve as a ‘rented battle field’ or ‘collection agency’” for a single creditor. Id., at 7. The bankruptcy court had stressed that “bankruptcy is not a judgment enforcement device.” In re Murray, 543 B.R. 484, 494 (Bankr. S.D.N.Y. 2016).

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