Also known as: general nonpayment · default · nonpayment
Written by attorneys · grounded in primary & secondary sources — see below
A condition establishing grounds for an involuntary bankruptcy petition when a debtor fails to pay its debts as they become due. This ground replaced earlier acts of bankruptcy to focus on whether financial failure has become general and affects the body of creditors as a whole.
Gregory Gates stopped making payments on three separate business loans and two supplier accounts over four months. His creditors filed an involuntary petition alleging that he was generally not paying debts as they became due. The court examined the pattern of missed obligations and concluded the ground was satisfied, commencing the bankruptcy case.
Gustavo Gutierrez failed to pay invoices from five vendors for more than sixty days. After the vendors obtained a judgment, the clerk entered default under the applicable rule because Gutierrez had not appeared or defended. The pattern of nonpayment supported the involuntary bankruptcy filing that followed.
Gavin Grant withheld rent and utility payments on leased commercial space for three consecutive months. The landlord incurred extra costs for temporary space while the default continued. Because Grant was generally not paying debts as they became due, creditors successfully commenced involuntary bankruptcy proceedings.
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Global Dynamics failed to pay its trade creditors and payroll taxes for six months while its sole shareholder withdrew funds. Creditors cited the pervasive nonpayment along with other factors to argue that the corporate form should be disregarded. The court applied a totality-of-circumstances test and found the ground for involuntary bankruptcy established.
Georgia Gibbs missed three consecutive payments under an installment land contract. The seller exercised an acceleration clause and declared the full balance due. Because Gibbs was generally not paying debts as they became due, the seller joined other creditors in filing an involuntary bankruptcy petition.
Gretchen Graham stopped paying obligations to multiple lenders and was later defaulted. The court entered judgment only for the amount demanded in the pleadings. The underlying pattern of nonpayment confirmed that Graham was generally not paying debts as they became due, supporting the involuntary case.
Congress substituted two simpler grounds, one of which is that the debtor is generally not paying its debts as they become due. This change was intended to make it easier for creditors to commence an involuntary case and to focus on whether the debtor's financial failure has become general.
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The ground is designed to capture situations in which a collective bankruptcy proceeding is necessary and beneficial because the debtor's inability to pay affects the body of creditors as a whole rather than isolated disputes.
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Appointment of a custodian for substantially all of the debtor's assets within the preceding 120 days is treated as a specific illustration of the probable existence of the generally-not-paying ground.
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