Three oilfield vendors outside Hobbs are owed about $68,700 by a pressure-control service company that has not answered an invoice since June. Can they force it into bankruptcy and let a trustee claw back what it paid other vendors last month? Under 11 U.S.C. § 303 they can try, but success at the first hearing in Albuquerque turns on arithmetic unrelated to the debt itself.
The First Circuit took up part of that arithmetic on July 24, 2025 in PCC Rokita, S.A. v. HH Technology Corp. (In re HH Technology Corp.), No. 24-9002. New Mexico sits in the Tenth Circuit, so the decision does not bind the court here, but it settles a recurring question in contested involuntary petitions.
What does § 303 require before creditors force a New Mexico business into bankruptcy?
Eligibility comes first: § 303(a) bars an involuntary case against “a corporation that is not a moneyed, business, or commercial corporation.” When two medical suppliers petitioned against a Las Cruces hospital, the court dismissed, holding in In re Memorial Medical Center, Inc., No. 05-14043-ML (Bankr. D.N.M. Nov. 9, 2005), that the winding-up debtor “has not lost its character as an eleemosynary organization.”
Section 303(b)(1) requires three or more entities, each holding a claim neither contingent nor “the subject of a bona fide dispute as to liability or amount,” totaling at least $21,050 above any lien. Section 303(b)(2) drops that to one filer “if there are fewer than 12 such holders.” The figure rose from $18,600 on April 1, 2025, a 13.2004 percent adjustment.
The same sentence lists exclusions: § 303(b)(2) counts holders “excluding any employee or insider … and any transferee of a transfer that is voidable” under the listed avoidance sections. They shrink the denominator, not just who may sign, and 11 U.S.C. § 101(31)(B) reaches a director, officer, or person in control. Disputed claims drop out too.
What did the First Circuit hold about creditors who received avoidable transfers?
In that case a judgment creditor watched the debtor wind down through a state-law assignment for the benefit of creditors, then petitioned alone in February 2022, arguing the assignee would never recover large prepetition payments. One creditor later joined, making two petitioners. The bankruptcy court counted twelve or more qualified creditors and dismissed.
The petitioners argued that a prima facie case of avoidability under § 547(b) sufficed to exclude a payment recipient. The First Circuit disagreed: “a transfer is not avoidable under section 547 if a section 547(c) defense applies.” The exclusion takes in all of § 547, so a creditor paid in the ordinary course still counts. Nor were the defenses forfeited by omission from the answer: § 547(c) defends a transfer, not a petition.
The opinion is careful on burden. It observed that “it would seem correct that the Assignee, not the Petitioning Creditors, would have the burden,” as § 547(g) allocates it, then declined to decide: the case “does not require us to resolve … the assignment of burdens of proof.” The burden “made no difference for at least two of those creditors, enough to meet the twelve-creditor minimum.”
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How does the Tenth Circuit test a bona fide dispute?
New Mexico petitioners answer to Bartmann v. Maverick Tube Corp., 853 F.2d 1540 (10th Cir. 1988), which held that a bankruptcy court “must determine whether there is an objective basis for either a factual or a legal dispute as to the validity of debt.” It also required a finding that the debtor was “not paying such debtor’s debts as such debts become due.”
Bartmann predates the 2005 amendment adding “as to liability or amount” to § 303(b)(1) and § 303(h)(1) (Pub. L. No. 109-8, § 1234(a)), so the test now reaches amount. The Tenth Circuit’s Bankruptcy Appellate Panel added in Red Rock Rig 101, Ltd. v. Unibridge Systems, Inc., BAP No. WO-07-073 (10th Cir. BAP May 15, 2008), that once a petitioner makes “a prima facie case that its claim is not subject to a bona fide dispute,” the burden shifts to the debtor. Unpublished, it persuades rather than binds.
How would the count run for a Hobbs service company?
Take a hypothetical. Permian Ridge Pressure Services, in Hobbs, stops paying invoices and is served with an involuntary Chapter 7 petition on September 22, 2026, so the § 547(b)(4)(A) reach-back runs to June 24, 2026. Twenty-two parties hold claims: nineteen trade creditors, two employees owed wages, and a $150,000 shareholder loan. Excluding the employees and shareholder leaves nineteen, four paid inside the window. Two are suppliers paid at roughly 30 days for three years, so § 547(c)(2) protects them. Two were paid at 75 days after threatening to stop deliveries; two others carry backcharge disputes. Fifteen qualify.
Fifteen is twelve or more, so three petitioners are required and four more would have to drop out to reach eleven. Worse, one of the three who signed is a $41,000 claimant facing a $26,000 rework dispute. The other two hold $18,500 and $9,200, clearing the $21,050 floor and still failing: one petitioner short.
Section 303(i) then lets the court, on a dismissal not by consent, award “costs” or “a reasonable attorney’s fee,” plus damages proximately caused by the filing and punitive damages against a bad-faith petitioner. Weigh $95,000 in defense fees and a cancelled $310,000 contract against a $68,700 debt.
What happens in the gap period, and how do New Mexico’s alternatives compare?
A petition does not immediately take the business. Section 303(f) lets the debtor use and dispose of property until an order for relief “as if an involuntary case … had not been commenced.” Federal Rule of Bankruptcy Procedure 1011(b) requires a defense “filed and served within 21 days after the summons is served.” Section 549(b) shields a gap transfer to the extent new value is given, but not one paying a prepetition debt, and gap credit takes third priority under § 507(a)(3).
The HH Technology debtor was already in a state assignment whose assignee would not chase the payments. New Mexico’s analogue is Chapter 56, Article 9 of NMSA 1978. Section 56-9-1 treats an act done “in contemplation of insolvency and with the design to prefer one or more creditors” as an assignment of “all the property and effects” of the debtor for all creditors. Receivership is the alternative, under NMSA 1978 §§ 44-8-1 through 44-8-10, where § 44-8-5 governs applications. Neither gives the fiduciary a trustee’s Chapter 5 avoiding powers, so a creditor chasing recent payments returns to federal court.
What should each side pull from the books first?
Section 303 litigation is a documents case, where an accounting eye earns its keep. Petitioning creditors need aged payables at the petition date, not the last closed month; a 90-day disbursement ledger from the check register and ACH log; an insider list tested against § 101(31)(B); and an honest read on whether a setoff nets their claim below the line, turning three petitioners into two. The target should pull a § 303(h)(1) “generally not paying” analysis, which compares past-due invoices to total payables rather than testing solvency. The average-days-to-pay math behind a § 547(c)(2) defense also defends a later preference suit, as the firm’s post on the ordinary-course defense under collection pressure explains.
| Claim holder | Number | In the twelve? | Provision | Document |
|---|---|---|---|---|
| Trade creditors, undisputed | 13 | Yes | § 303(b)(1) | Aged payables |
| Employees owed wages | 2 | No | § 303(b)(2) | Payroll register |
| Shareholder lender | 1 | No | § 101(31)(B) | Loan note |
| Paid in 90 days, defense holds | 2 | Yes | § 547(c)(2) | Payment history |
| Paid in 90 days, defense fails | 2 | No | § 547(b) | Check register |
| Claims in dispute | 2 | No | § 303(b)(1) | Backcharge file |
Frequently Asked Questions
How many creditors does it take to file an involuntary bankruptcy in New Mexico?
Under 11 U.S.C. § 303(b)(1), three or more entities must file when twelve or more qualifying claim holders exist, and their noncontingent, undisputed claims must total at least $21,050 above any securing lien. Section 303(b)(2) allows one filer only below twelve.
Is the involuntary petition threshold still $18,600?
No. The Judicial Conference raised the § 303(b) figure to $21,050 effective April 1, 2025, a 13.2004 percent Consumer Price Index adjustment published at 90 Fed. Reg. 8941. Adjustments run every three years, so the next is due April 1, 2028.
Which creditors are excluded from the twelve-creditor count?
Section 303(b)(2) excludes any employee or insider of the debtor and any transferee of a transfer voidable under 11 U.S.C. § 544, 545, 547, 548, 549, or 724(a). Contingent claims and claims in bona fide dispute also drop out of the count.
What did the First Circuit actually decide in HH Technology?
In PCC Rokita, S.A. v. HH Technology Corp., No. 24-9002 (1st Cir. July 24, 2025), the court held that avoidability accounts for defenses: “a transfer is not avoidable under section 547 if a section 547(c) defense applies.” So an ordinary-course payee still counts toward the twelve.
Who proves a section 547(c) defense in a contested involuntary petition?
The First Circuit said it “would seem correct” that the assignee, not the petitioning creditors, carries that burden, tracking 11 U.S.C. § 547(g), then declined to decide, since the case “does not require us to resolve … the assignment of burdens of proof.”
What can a New Mexico company recover if an involuntary petition is dismissed?
Section 303(i) permits the court, on a dismissal other than by consent of all parties, to enter judgment against the petitioners for costs or a reasonable attorney’s fee, and against a bad-faith petitioner for proximately caused damages plus punitive damages.
How North Star Law Firm Can Help
North Star Law Firm handles contested involuntary petitions in the U.S. Bankruptcy Court for the District of New Mexico from either side: attacking or building the § 303(b) creditor count, litigating bona fide disputes, and pursuing or resisting § 303(i) fees and damages on dismissal. It also handles preference and clawback defense and cases that follow an order for relief under Chapter 7 or Subchapter V, with more on the bankruptcy page.
Phillip Zagotti, JD/CPA, is an Attorney and CPA admitted to practice before the U.S. District Court and the U.S. Bankruptcy Court for the District of New Mexico. He is not licensed by the State Bar of New Mexico, and the firm works alongside New Mexico-licensed counsel on state-law matters such as assignments for the benefit of creditors and receiverships. The firm also discusses which bankruptcy chapter fits a New Mexico business. To have a petition or a 90-day payment history reviewed, contact North Star Law Firm.