Adversary proceeding. This is a chapter 7 non business. Plaintiff was party who purchased equipment from us and although we thought we paid it off it was not. No communications from the finance company for over a year. Then we were notified by plaintiff that it was NOT paid off. Tried to contact original finance company to get this resolved and make remaining payments to them. Plaintiff then filed suit against us as we were working with the finance company and we were out of town so registered agent who resigned (we were an LLC which was dissolved) did not inform us of the suit instead she mailed us the paperwork knowing we were out of town. We could not answer in a timely manner and there was a default judgement issued. Additionally, Plaintiff had filed against the LLC and a member who signed the bill of sale.
Attempts to contact the Judgement Creditor were unsuccessful as they would not respond. Then 3 months later the finance company filed suit against us AND the Plaintiff alleging that the monies were owed and that our Judgement Creditor had refused to pay the bill or return the equipment. SO....the original finance company backed off on us because we had already been sued for this issue. The original finance company has not done anything with the remainder of the suit (to date) and it has been over 9 months.
Our plaintiff filed the Adversary Proceeding under 523 (a)(2) but this was not an intentional on the part of the LLC member who signed the bill of sale as the LLC thought the equipment was paid off. The LLC consisted of myself, my wife and my father. My wife and I are filing bankruptcy (not my father) and the Plaintiff has brought this against my wife.
My thought is that since the Plaintiff has not paid the bill either and is the subject of a lawsuit for the same amount as the judgement from the original finance company he is not entitled to the objection of discharge for this debt. However, since we are pro se and can neither afford an attorney nor find one in MT who really has a clue as to this type of proceeding we should just settle for a minimal amount to get this resolved. Thoughts?
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OK, I understand that but....this was not a loan from our Plaintiff. It was a sale of equipment which I think they are trying to say was conversion (which it was not intentionally). If Adversary Proceeding is for loans then why can they even bring this proceeding?
Response: First and foremost, a Chapter 7 business debt does not get a discharge of debts in bankruptcy. See 11 U.S.C. Section 727(a). The two benefits for filing a Chapter 7 business bankruptcy is for orderly liquidation of business assets and to prevent the officers of the business from being dragged to non-bankruptcy Courts on a daily basis. Technically, since a Chapter 7 business debtor does not receive a discharge order from the bankruptcy Court, its creditors may still come after the business for the debts but this is highly unlikely. Once the Chapter 7 bankruptcy has been concluded and all assets of the business liquidated, there is little or no incentive for a lawsuit to be filed against the bankrupt business and/or its officers.
Adversary proceeding is not limited to loans. It can be objection to your bankruptcy case in general on the account of fraud, conversion, etc.
You should continue with the adversary proceeding here. Do not settle. Otherwise, you would wind back in the State Court to litigate the same issue after your bankruptcy is concluded and before the dissolution of your business. You are better off litigating in the bankruptcy Court than in the State Court. The Plaintiff has the burden to prove its case or the Bankruptcy Court would dismiss the case. Make sure that you respond to the complaint. Otherwise, he would obtain a default judgment against you in the Bankruptcy Court.
Once your bankruptcy case is concluded, the next thing to do is file for dissolution of your business with your Secretary of State's Office. Your Chapter 7 bankruptcy filing does not automatically dissolve your business eventhough that Chapter 7 is a liquidation chapter. You must file papers with your Secretary of State Office to have the business dissolved. After that, no one can sue the business because the business no longer exists.
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