If the petition is signed by the debtor himself, and proceedings are thus begun by him, the bankruptcy is said to be voluntary. In such a case the main ob ject proposed is the final discharge of the debtors from liability. If, on the other hand, the petition is signed by creditors, the proceedings are called involuntary, and the main object is to get ;the bankrupt's assets and to apply them ratably to the payment of his debts. Thereafter the bankrupt may apply for his discharge just as he would in voluntary bankruptcy.
6. Contents of the petition.—Petitions may be filed against any person who might seek voluntary bank ruptcy, with the exception of farmers or tillers of soil and wage-earners earning less than $1500 a year.
Besides showing that the alleged bankrupt is a per son capable of being declared a bankrupt, and is in solvent, the petition must show that the debtor owes at least $1000 in the aggregate. If the proceedings are involuntary the petition will have to be signed by three creditors whose aggregate claims amount to at least $500, or by one creditor with a $500 claim if the total number of creditors, excluding certain near relations, are less than twelve. Moreover, it is neces sary to allege in involuntary proceedings that the debtor has committed a so-called act of bankruptcy.
7. Acts of bankruptcy.—The fact that a person happens to be insolvent is not sufficient reason for set ting the machinery of the bankruptcy courts in mo tion. These courts exist for the purpose of protect ing creditors and helping insolvent debtors to gain a new lease on life. If the latter object alone is to be attained let the debtor begin his voluntary proceed ings. But until the creditors' rights are jeopardized the courts need not interfere on the ground of pro tecting the creditors' claims.
The Bankruptcy Act, therefore, enumerates five acts which, when coupled with insolvency, are grounds for believing that the rights of the creditors as a class are in danger. When the creditors can prove that one of these acts has occurred, the insolvent debtor will be declared a bankrupt.
8. The five acts of bankruptcy.—The acts of bank ruptcy enumerated by the statute are as follows: (1) Transferring or concealing property with the intent to defraud or hinder creditors.
(2) Granting preferences. If a debtor pays an antecedent debt clue to one creditor he thereby di minishes his estate applicable to the payment of his other debts.
(3) Preferences permitted by legal proceedings. When a creditor gets a judgment, he is entitled to seizure of such a part of the debtor's estate as will satisfy the judgment. If the execution sale actually takes place it will have the same disastrous effect on other creditors as a voluntary payment. Hence un less the proceedings are vacated within five days of the date advertised for the sale, the debtor will be deemed to have committed an act of bankruptcy.
(4) An assignment for the benefit of creditors or the appointment of a receiver is ground for an appli cation to the bankruptcy courts. This explains, no doubt, why assignments generally are not made. They simply invite bankruptcy proceedings; why not, therefore, begin the proceedings at once? (5 ) Written admission of insolvency and willing ness to be declared a bankrupt is the fifth ground. Before 1910, it was frequently used by insolvent cor porations, because prior to an amendment of that year corporations could not become voluntary bankrupts.
Any one of these acts, committed while the debtor is insolvent, and within four months of the filing of the petition, is sufficient to move the court to sign the decree.
9. Provisional remedies pending adjudication.— Suppose an involuntary petition has been filed. The facts stated in it may be denied by the alleged bank rupt. IIe has at least five days in which to answer. That time will give a dishonest debtor ample op portunity to lay up stores against the time when he will emerge from the period of bankruptcy by an unmerited discharge. But the law is adequate to meet the situation, and a wide-awake credit man will be diligent to use every resource which the law affords.
In the first place an order may be obtained for the immediate seizure of the debtor's goods, or he may be enjoined from disposing of them. If he disobeys the injunction, he may be jailed for contempt of court. If the insolvent tries to evade bankruptcy or examina tion of his assets by leaving the jurisdiction of the court, application may be made for his immediate arrest. Moreover a creditor need not wait till a debtor has been declared a bankrupt but may begin I separate actions to have illegal and fraudulent trans fers of property set aside. These actions will be con tinued afterward, virtually as a part of the bank ruptcy proceedings.